By Paul Schwedelson – Reporter, Philadelphia Business Journal
The vacancy rate of industrial properties in the Philadelphia region just dropped for the first time in two years, partly the result of an uptick in tenant demand.
Much of that industrial demand has come from third-party logistics companies, specifically those based in Asia, that had previously been priced out of the Northeast market, according to real estate services firm CBRE. As vacancies increased and conditions favored tenants, third-party logistics companies made up almost 80% of leasing activity in the region in the third quarter, CBRE reported.
“Speaking with our brokers lately and listening to the market activity, there is a noticeable uptick in activity and requirements and tours in the market,” CBRE Director of Research Joe Gibson said. “So I believe the demand part is going to come back to some sort of equilibrium state.”
In the third quarter, the region’s industrial vacancy rate fell from 7% to 6.5%, the first time it dropped since late 2022, according to brokerage firm Colliers. It’s a vacancy rate that more closely resembles those seen during the period from 2016 to 2019 rather than the record lows of around 2% posted during the Covid-19 pandemic.
Developers rushed to construct new industrial buildings to meet demand from e-commerce companies and other industries boosted by the pandemic, and the projects completed in the years since have significantly grown the supply of industrial space in the Philadelphia area.
That’s opened opportunities for third-party logistics companies like California-based Lecangs, which signed a lease to take the entirety of an 845,280-square-foot building at 1900 River Road in Burlington, New Jersey, and Netherlands-based Cirro, which leased a recently built 806,000-square-foot warehouse at 1183 Florence Columbus Road in Bordentown, New Jersey.
“Companies had been taking a really long time to make decisions and they’re finally starting to move,” Colliers Market Research Director Rose Penny said. “We’ve been having an increase in tours and interest in buildings.”
Chicago-based Bridge Industrial is in the middle of developing 1.4 million square feet of warehouse distribution space in Philadelphia. Third-party logistics company Veho recently signed a lease for 148,611 square feet to fully occupy a new warehouse at 4501 Richmond St. in Philadelphia’s Bridesburg neighborhood.
Connor Milanaik, director of investments for Bridge Industrial, said volatility in interest rates forced companies to hesitate before making real estate decisions. With the Federal Reserve now beginning to lower rates, “we do expect that’s going to allow more certainty from a tenant demand perspective,” Milanaik said. “That is what we’re seeing.”
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