Wednesday, November 11, 2020

A Pivotal East Coast Trade Network Looks Primed for More Industrial Development

Even before the pandemic hit, markets along vital trade arteries were experiencing rapid logistics development because of an increasing preference by consumers to shop online.

Retailers were restructuring company supply chains and leasing tens of millions of square feet of warehouse space across the country to remain competitive in a world where overnight delivery was becoming the norm.

This shopping shift set off a frenzy of development along the North Atlantic trade corridor, a region that runs roughly from Hagerstown, Maryland, to Scranton, Pennsylvania. These markets provide immediate access to every major city along the Northeastern shore, as well to respective ports and sprawling suburbs. 

Since the virus has rapidly accelerated, and necessitated, the expansion of e-commerce, growth in the 10 markets that make up the North Atlantic trade corridor could continue into the future. The corridor already contains more than 1,400 warehouses and distribution centers of at least 100,000 square feet, and have a collective logistics footprint of over 445 million square feet.

“The region is just so well connected with all the nearby cities that more growth wouldn’t be surprising at all,” Doug Enck, vice president of ECD Services in Camp Hill, Pennsylvania. Enck’s firm is a third-party logistics provider, and a substantial chunk of his company’s revenue comes from driving goods from one warehouse to another. “Our biggest issue isn’t demand. It's labor.”

Since 2016, the region’s logistics stock has grown by 25%. That’s nearly 85 million square feet of commercial real estate development in a little less than five years. Much of the new inventory has consisted of buildings measuring at least 500,000 square feet, and a substantial chunk of it was contained in Harrisburg and the Lehigh Valley.

These markets are the hearts of Pennsylvania logistics. Both contain multiple major interstates, and from there, New York, Philadelphia and Baltimore can be reached in under two hours.

Lehigh’s growth over the past five years is particularly remarkable. In that time, developers have added more than 40 large-scale logistics facilities over 500,000 square feet and expanded Lehigh’s overall inventory by about 27%. In that same time, developers have added 10 massive logistics centers in Harrisburg, and demand has since spilled over into neighboring markets.

Lebanon, Chambersburg, Reading and York have experienced a remarkable uptick in construction of large-scale centers. These markets are particularly useful for servicing densely populated Maryland nodes. Hagerstown’s supply of large-scale facilities grew by over 30% since 2016, while Chambersburg’s grew by nearly 25%.

Even in large cities such as Baltimore that are not necessarily known for their logistics prowess, there has been notable growth in large facilities. About 72% of Baltimore’s logistics growth since 2016 has come by way of large-scale facilities, slightly outpacing the 68% average rate of growth of large-scale facilities across these 10 mid-Atlantic markets over the past five years.

This growth was occurring pre-pandemic, and the coronavirus has spiked e-commerce levels into the stratosphere. This has led to a surge of industrial demand across the country, and CoStar’s national-level data shows that third quarter industrial leasing volume is at the highest levels in over 15 years.

In spite of the recent wave of supply, vacancy rates in the markets along the North Atlantic corridor align with the respective historical averages. Leasing activity remains strong and, according to local shippers, the markets quickly recovered from the coronavirus.

“We saw a drop off in late April, but by June everything had normalized,” Enck said.

The shutdown brought an end to construction for much of the second quarter, but groundbreakings have ticked back up in the second half of the year. Across these 10 markets, more than 6.4 million square feet of logistics space of at least 100,000 square feet broke ground in the third quarter alone.

That marks the highest single quarter total since 2018, further underscoring developers’ eagerness to bring additional supply to these emerging nodes across Maryland and Pennsylvania.

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