Taking a Closer Look at the Strong Lancaster Industrial Real Estate

by Ben Atwood Costar Analytics  

Despite some slight softening of occupancies over the course of 2020, data unequivocally shows that the industrial market in Lancaster, Pennsylvania, remains on rock-solid ground at the start of the new year, indicating growth could be on the horizon.

This is due in large part to the surge in e-commerce generated by the coronavirus. As the country sheltered in place to stop the spread, the number of consumers buying goods online skyrocketed, fueling unprecedented demand for logistics space.

So, even though Lancaster’s industrial market saw negative absorption over the course of 2020, it’s not troubling locals at all.

“We’re still in a great place,” said Bill Boben, a senior vice president at developer High Associates. “Because of our agrarian roots, Lancaster is sort of the mini-breadbasket of the mid-Atlantic, so there is plenty of food production and processing here.”

Central Pennsylvania’s location and distribution capacity have made it a national player in the snack food industry. It’s why brands like Utz, Snyder’s and Hershey’s are household names, and Boben believes that food distribution is playing a key role in keeping the local industrial sector stable.

Lancaster’s industrial assets are over 97% occupied, especially impressive considering it's a smaller market with a hefty amount of local manufacturing. This meant it was somewhat exposed to risk at the start of the pandemic, which is why absorption took a hit. But with the worst of the disruption likely out of the way, Lancaster now looks primed for growth.

What is particularly interesting here is that this development might not resemble what is seen in the other markets within the North Atlantic Trade Corridor. From any warehouse within these seven Pennsylvania markets, more than 60% of the country’s population is within a single day’s drive, and that level of access has fueled more than 100 million square feet of warehouse and distribution space since 2010.

Only 5 million of that was in Lancaster, but developers haven’t been sleeping. Around 33 industrial assets have delivered here since 2010, double what delivered in nearby Lebanon and roughly the same number of properties that arrived in York and Scranton.

What’s curious about this is that the total square footage delivered in each of those markets exceeded what arrived in Lancaster, indicating that in other regions, larger assets are the demand drivers. This makes sense because these markets have better access to major interstates, something Lancaster lacks.

Instead, the suburbs of Philadelphia could be Lancaster’s great strength. Most of its newest buildings are close to smaller routes like Interstate 30 and Interstate 222, which run directly into Philly suburbs like Kennett Square, West Chester and Exton.

Last-mile delivery into these expansive suburbs could be pushing demand, and there is some data to back this up. Lancaster industrial demand comes from small leases. In fact, just over 20% of the total number of leases signed for 50,000 square feet or less across the North Atlantic Trade Corridor was in Lancaster. This is the third-highest total, just behind Harrisburg at 21% and Lehigh Valley at 23%. That figure is even more impressive considering that the inventories of those two markets dwarfs Lancaster’s.

The local market could get even tighter in the near future. Though nothing has been finalized, local news has been reporting for several months that a major e-commerce firm is looking to fill a vacant 415,000-square-foot warehouse in Mount Joy.

This seems plausible given the acceleration of e-commerce and Lancaster’s prime position near Philadelphia’s suburbs. Even if it falls through, with occupancies as tight as they are, a slight uptick in demand could justify more development.

www.omegare.com