The Philadelphia and I-81 and I-78 industrial markets continued to experience robust leasing activity and falling vacancies in the first quarter of 2017, according to Industrial MarketBeat reports released by Cushman & Wakefield’s Philadelphia research team. The commercial real estate services firm also projected that the continued boom in new construction activity will drive increases in asking rental rates through 2017.
“The Philadelphia industrial market’s overall vacancy rate declined to 3.9 percent in the first quarter of 2017, down 170 basis points from the same period in 2016,” said Jared Jacobs, Cushman & Wakefield research manager. “Asking rental rates rose by 6.4 percent year-over-year to $4.81 per square foot for all industrial property types, while warehouse and distribution asking rates increased by 1.2 percent to $4.26 per square foot.”
While overall net absorption was positive to begin the year at 1.3 million square feet, it is down 38.9 percent year-over-year. Construction activity remains healthy with 692,530 square feet of new product delivered in the first quarter, all in the Southern New Jersey market.
Nearly half of the 2.4 million square feet of first quarter leasing activity was in Southern New Jersey. In Burlington County, the largest lease of the quarter was signed by B&H Photo Video, which took 577,200 square feet at 400 Cedar Lane in Florence. In Gloucester County, LKQ Corporation signed for 183,570 square feet at 119 Crown Point Road in Thorofare.
In the Philadelphia suburbs, the largest lease was signed by Xpo Logistics, Inc., which took 195,120 square feet at 3000 AM Drive in Quakertown in the Upper Bucks County submarket. Other notable lease signings included Amazon taking 110,422 square feet at 2455 Boulevard of the Generals in Norristown and All Balls Racing, Inc. leasing 105,000 square feet at 668 Gravel Pike in East Greenville.
In Northern Delaware, Hermann Services inked a 124,217-square-foot lease at 350 Anchor Mill Road in New Castle.
Investment sales activity is up 71.0 percent year-over-year, with 15 buildings transacted totaling 1.4 million square feet compared to 12 buildings sold for 829,984 square feet a year ago. Evidenced by the large volume of activity experienced in the market over the past two years, investment sales activity is expected to remain strong throughout 2017.
Asking rental rates are projected to increase by 4.2 percent by the end of this year, driven by rising tenant demand and new speculative construction. The bulk of the Philadelphia industrial market’s activity will continue to take place in Southern New Jersey, which is home to 98.1 percent of the 2.7 million square feet of product currently under construction.
PA I-81 and I-78 Market
Construction activity also remains strong in the I-81 and I-78 industrial market. During the first quarter, 3.2 million square feet of new product was delivered with speculative construction accounting for 77.0 percent of the total. The Central PA submarket accounted for 83.6 percent of this new inventory.
“Construction activity shows no signs of slowing in the I-81 and I-78 industrial market,” noted Jacobs. “Of the 11.4 million square feet of new inventory set to deliver over the next 12 months, 67.0 percent is being constructed on spec. We expect this to push asking rental rates close to the $5.00-per-square-foot mark by year-end.”
For the quarter, asking rental rates increased by 8.5 percent year-over-year to $4.72 per square foot. The market’s overall vacancy rate declined 150 basis points year-over-year to 5.1 percent.
The Northeastern PA submarket kicked off 2017 with 1.5 million square feet of new leasing activity, accounting for 63.3 percent of the market’s total activity for the first quarter. Activity has picked up significantly in the submarket over the past five quarters, with 10.5 percent more volume over that period than 2012 to 2015 combined. Significant transactions included:
-Romark Logistics signing the largest lease of the quarter for 437,446 square feet at 1 Commerce Road in Pittston;
-Two confidential tenants taking 357,500 square feet and 292,500 square feet, respectively, at 25 Keystone Boulevard in Pottsville;
-Coremark leasing 155,000 square feet at 213 Great Valley Boulevard in Wilkes-Barre;
-McLane taking 110,000 square feet at 37 Valley View Road in Jessup.
In Lehigh Valley, Barry Callebaut signed the largest lease of the quarter for 527,168 square feet at 4863 Hanoverville Road in Bethlehem.
In Central PA, significant deals included Allen Distribution renewing for 321,333 square feet at 100 Capital Lane in Middletown and Wolf Furniture taking 200,000 square feet at 495 East Locust Lane in York.