Industrial sublease space swells in Eastern Pennsylvania

By Brenda Nguyen CoStar Analytics

The eastern Pennsylvania region, which includes major areas such as Philadelphia, the Lehigh Valley, Scranton and Harrisburg, encompasses more than 1.4 billion square feet of industrial inventory representing more than 7% of the total industrial space across the United States. Its strategic location at the center of the country’s largest concentration of spending power has historically contributed to a strong overall performance.

However, over the past several quarters, the region has encountered a downturn in demand primarily attributed to a slowdown in consumer spending and elevated borrowing costs. In response, several big-box facilities have been listed for sublease. As of the third quarter, the sublet share of total available space has seen a notable increase rising from 2.3% to 11.3% in the span of two years. Struggling retailers and third-party logistics providers have been behind much of this increase in sublet availability.

Earlier this month, British fashion e-retailer BooHoo Group announced plans to close its 1.1-million-square-foot warehouse at the First Logistics Center @ 283 in Londonderry Township, Pennsylvania. This facility is expected to close by November 11.

The company’s decision to shut down its U.S. operations and fulfill orders from its automated distribution center in Sheffield, United Kingdom, suggests U.S. sales have not been as strong as expected just over a year since the company occupied the facility in 2023.

Back in May, Smuckers also listed its 1.14-million-square-foot facility in Newville, Pennsylvania for sublease. The company is open to subleasing anywhere from 525,000 square feet up to the entire facility. This listing is one of the largest sublet spaces on the market and is being marketed with an "aggressive sublease rate," according to real estate brokers.

The slowdown in home sales—currently at their lowest levels in over a decade—has also affected consumer spending on home improvement, furniture and home goods. Retailers in these segments have faced significant challenges. For example, Wisconsin-based kitchen and bath product manufacturer Kohler listed 425,000 square feet of its one-million-square-foot facility in Reading, Pennsylvania for sublease in March 2024 and Hollander Sleep & Décor put more than 350,000 square feet of its space in Pottsville on the sublet market last year.

Third-party logistics companies have not been spared from these economic pressures either. Broadrange Logistics, Returns Worldwide and All-Ways Forwarding are several logistics providers that have each listed more than 300,000 square feet for sublease in recent quarters.

As 2024 begins to draw to a close, CoStar is projecting the eastern Pennsylvania region to post the lowest level of industrial absorption for the full year—defined as the net change in occupied space—in over a decade. The first half of the year saw particularly challenging conditions, with negative absorption recorded for the first time since 2012 during the second quarter.

However, the adverse market conditions are expected to be temporary. Demand for goods is anticipated to increase throughout 2025 as the Federal Reserve has made one rate cut and indicated that lower interest rates are on the horizon.

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