Thursday, August 10, 2023

Handful of Central Pennsylvania Areas Boast Nation’s Lowest Industrial Vacancy

Industrial Hub Along I-81 Corridor Has the Lowest Industrial Vacancy Rate in the US

By Brenda Nguyen Costar

An area west of Harrisburg, Pennsylvania, situated along the I-81 corridor, leads the nation with the lowest industrial vacancy rate among the 75 industrial locales with over 50 million square feet of industrial inventory tracked by CoStar. The area's remarkable tenant demand and leasing performance have compressed the amount of available space to a historic low of 1.1% as the region has established itself as a highly in-demand site for logistics companies and retailers in the Mid-Atlantic.

This section of central Pennsylvania has emerged as a strategic stronghold for companies seeking efficient distribution and access points to major markets across the Northeast and beyond. Intersected by major highways such as Interstate 81, Interstate 83 and the Pennsylvania Turnpike, the region boasts seamless connectivity to heavily populated metropolitan areas such as Philadelphia, New York City, Baltimore and Washington, D.C.

The industrial area, designated as Harrisburg Area West in submarket delineation, is not the only Pennsylvania location to post ultra-low vacancy. Two nearby industrial hubs, Bucks County and Lancaster County also rank among U.S. areas with the lowest vacancy rates, boasting rates of 1.7% and 1.8%, respectively.

While many large industrial markets have experienced an uptick in vacancy due to increased supply from new project completions and a decrease in the number of large lease signings, Harrisburg Area West has run against the grain. Despite heavy demand, only 3 million square feet of new industrial space has been added over the past three years, expanding the existing inventory by less than 4%. Subsequently, its vacancy rate compressed by 0.4% over the past year, leaving nearly no room left to compress further.

Average rents have surged by 9.4% in response to the rise in demand, further indicating a supply-constrained, landlord's market. With no significant industrial projects underway, tenants seeking available space in this area may need to consider other options in nearby areas as demand overtakes supply.

Harrisburg Area West still has a few gems left in its real estate inventory. The most prominent available space on the market is EQT Exeter's 40 Dauphin Drive, a 600,000-square-foot Class A distribution space in Mechanicsburg. A mere three other Class A spaces ranging from 37,000 to 140,000 square feet are currently available, while the remaining 37 available blocks of space consist largely of Class B and C properties. Despite the limitations in available space, seven projects totaling 1.25 million square feet have been proposed, suggesting some temporary relief may be on the horizon.

That said, Harrisburg Area West is poised to remain a highly competitive industrial market for the foreseeable future, thanks to its constrained vacancy, muted construction activity and steady demand.

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