Wednesday, December 16, 2020

Scranton's Industrial Market Holds on Strong Through 2020

 With just a few weeks left in the year, it appears increasingly likely that Scranton will be crowned the 2020 Queen of Pennsylvania logistics.

Her ascension to the throne is somewhat surprising. There were some troublesome signs within the market at the onset of the pandemic. And for years, Northeast Pennsylvania has played second fiddle to Lehigh Valley, which offers better access to New York and Philadelphia.

But CoStar data shows industrial net absorption, the difference between move-ins and move-outs, in Scranton totaled nearly 4 million square feet over the past 12 months, more than every other market contained within the North Atlantic trade corridor.

This region runs from Scranton down to Hagerstown, Maryland, and over the past decade, nearly every serious player in e-commerce has moved into at least one of its small markets. That’s because from them, every major city along the northeastern coast can be reached within hours.

Even with this strong demand, it appeared Scranton was possibly in for some short-term pain the second quarter.

No one had a clue how leasing any commercial property type would function at the onset of the pandemic, and Scranton had millions of square feet of speculative industrial space nearing completion. There was also a concentration of tenants that appeared to be at risk of downsizing within the market.

This could've compounded the disruption the new supply would create, and with a surplus of projects set to come online in nearby Lehigh Valley, the competition for new tenants looked like it would be fierce.

Instead, local demand spiked.

The exposed tenants have not downsized their local presence, and most of Scranton’s industrial tenants remain in place. Additionally, major leases were signed by Geodis, Kane Logistics and Lowe's. Even with millions of square feet in speculative space arriving, the market's overhead vacancies actually trended down over the second half of the year.

"The Greater Scranton industrial market is not only surviving the pandemic, but thriving in it," said Jim Cummings, vice president of marketing for Mericle Commercial Real Estate Services, the market's largest developer of logistics space. "We traditionally compete against northern and central New Jersey and other parts of eastern Pennsylvania, but those areas are becoming overdeveloped and expensive. Right now, we have the right combination of interstate access, tax incentives and workforce.'

This bodes well for Scranton’s future. There's still about 2.5 million square feet of logistics space under construction; much of it is speculative. Given the market easily filled this amount of space throughout this turbulent year, it looks likely that demand will keep up with the new supply through 2021.

"The key for us going forward is whether we'll be able to find enough developable land in this market to keep up with demand," Cummings said. "Our mountainous terrain and past industrial history mean we don’t have a lot of available flat land with utilities near our interstates. We often have to take sites most other developers would pass up and find creative ways to shape them into viable business parks."

Experience with creative development might be a plus in the near future as developers look to rapidly adapt to the e-commerce boom. Empty shopping malls, vacated department stores and even repurposed mines are being sought after across the state for redevelopment and expansion.

There are more than a few high-vacancy shopping malls in Scranton and quite a bit of empty shopping centers, too. It probably won't come to this, but there's plenty of abandoned coal mines here as well.

Scranton's reign might be brief; there’s a lot of space in Lehigh that could lease any day. Regardless, her future looks quite promising.

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