Despite tremendous demand for Lehigh Valley warehouse and distribution space over the last three years, the regional industrial market has hit a speed bump in the first half of 2024, a trend that mirrors other in-demand industrial hubs nationwide.
Nationally, absorption of industrial space in the first half of 2024 is 70% lower than the same period in 2023. In the Lehigh Valley, the decline has been even more drastic, hitting -1.4 million square feet in negative absorption—the net change in occupied space in the last 12 months.
Rising business expenses, a housing slowdown and the stretched health of the consumer have contributed to the pullback in demand for industrial space in recent quarters. The slowdown has coincided with 3.2 million square feet of new industrial space hitting the market, resulting in a 2% year-over-year increase in vacancy.
Furthermore, none of the 13 speculative industrial buildings under construction in the Lehigh Valley region had yet to secure a tenant as of late June, a stark contrast to prior years when major companies such as Shopify, Uline, Kenco Logistics and Grainger all signed leases for industrial buildings before they had been completed.
NorthPoint Development’s one-million-square-foot building at East Valley Logistics Park in Nazareth is the largest speculative industrial project in the works. Construction began on the mega-warehouse in the summer of 2023 and is slated for completion in mid-2024. The space has been listed on the market for over four years since it was in the proposal phase.
Among existing buildings, Prologis’s Lehigh Valley East in Northampton, another one-million-square-foot facility completed in 2023, remains the largest block of industrial space available in the market and has also been listed for over four years.
In recent months, more tenants have opted to lease existing buildings. According to brokers, prospective tenants prefer to be able to walk through the completed building before committing to a lease. And they also believe they are more likely to secure favorable terms for existing space, especially if the owner has sat on a vacant property longer than anticipated.
Major recent deals signed in existing buildings include Carbel's deal in April for a 470,000-square-foot building at the JW Industrial Park, which was built in 2022 and on the market for over three years. Before that, in January 2024, Glenmark Pharmaceuticals leased a 160,000-square-foot building that was completed in April 2023 and was on the market for 18 months.
While the industrial space market has cooled recently, the region's track record and growing investor interest suggest a promising long-term outlook. Even with the slowdown, the overall industrial vacancy rate remains a modest 6%, lower than the national average of 6.5%. Based on historical demand, Lehigh Valley's surplus industrial inventory could be absorbed within a couple of years.
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