By Brenda Nguyen Costar
The recent construction boom of industrial space across the Philadelphia region has posed lease-up challenges as supply continues to outpace demand for the fifth consecutive quarter.
In the past year, greater Philadelphia's industrial real estate market has experienced an unprecedented surge in new inventory, with developers adding more than 20 million square feet of industrial space. Subsequently, the region's availability rate has expanded to 9.5% in the fourth quarter, a significant increase from the low of 6.6% observed in mid-2022.
A total of 1,055 industrial properties totaling 56 million square feet of space are available and searching for tenants. This increase in availability is a notable shift from the tighter market conditions seen in mid-2022 when approximately 40 million square feet of space were available for lease.
Southern New Jersey, in particular, has played a significant role in driving these headline numbers. The area, known for its robust industrial activity, has seen pronounced spikes in availability rates.
Two localities, Burlington County and Salem County, stand out. Burlington County's availability rate has surged to 16.5% in the fourth quarter, doubling its availability rate compared to two years ago. Meanwhile, Salem County's significantly smaller inventory is approaching a 30% availability rate. However, the smaller size of markets such as Salem County makes them more susceptible to significant fluctuations.
Burlington County's Pennsylvania neighbor, Bucks County, has also experienced substantial industrial construction levels. However, the availability rate remains relatively lower at 6.8% in the fourth quarter. Bucks County's construction activity is about half that of Burlington County's. Moreover, Bucks County's industrial inventory is only 45% the size of Burlington's. Its comparatively smaller selection of inventory has bolstered compressed vacancies at under 2.5% in recent quarters—among the lowest in the country.
Burlington County saw nearly 8.9 million square feet of completed industrial properties in the past year, intensifying lease-up competition in the market. Despite annual net absorption reaching 2.1 million square feet—the best performance by a locality in the region—demand has struggled to keep pace with the overwhelming supply pipeline.
Notably, the largest industrial facility in the county, Box Park Logistics Center, a massive 1.2 million-square-foot distribution facility, was constructed on a speculative basis without a tenant in place and still awaits signing a tenant. Of the 16 industrial properties completed here in 2023, 10 single-tenant buildings are still seeking tenants.
As leasing activity has incrementally softened in the past year, it will likely take longer to lease up the available inventory than developers initially anticipated. However, there is hope for stabilization as developers have significantly pulled back construction starts in 2023. This pause in additional supply sets the stage for the market to stabilize and absorb the excess supply in due course.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.