The Philadelphia Market continued to grow in Q2 2017. Another 4 million SF was delivered to our Core Data Set (CDS), which now boasts over 425 million SF of industrial space across Eastern PA, Southern New Jersey, and Delaware. Our CDS focuses on industrial properties, 100,000 SF or larger, with a current design or adaptability to warehouse and distribution.

Construction activity picked up in Q2. 5.8 million SF of speculative construction began in Q2, of which 3.5 million SF was located in the Harrisburg West submarket (Cumberland and Franklin counties). NorthPoint Development and Matrix Development each began 1 million SF projects in Franklin County, while Liberty Property Trust began an 800,000 SF project in Cumberland County. In Northeastern PA, (our “I-81 Corridor” submarket) Mericle has commenced both speculative and build to suit construction, with a 140,000 SF built to suit for Bimbo Bakeries, as well as 400,000 speculative SF in their CenterPoint East Trade Center in Pittston, PA. Mericle also delivered 150,000 SF in a build to suit for Core-Mark in Hanover Township, PA, and began speculative construction of 200,000 SF in Humboldt Industrial Park.

The availability of preferred development sites continued to be a significant challenge in the site selection process in Q2. The lack of available and entitled sites is raising FAR prices driving developers to look for alternative solutions in primary locations in Central PA, the Lehigh Valley and Southern New Jersey. Ridgeline began redevelopment on the recently acquired former Kraft facility in Lehigh County. That project is planned to deliver two, 700,000+ SF buildings in a dense industrial sector of the Lehigh Valley with immediate access to I-78. First Industrial’s redevelopment of Cedar Lane in Burlington County New Jersey is another successful example, as that property was leased soon after redevelopment in late Q4 2016.

Additionally, Endurance Real Estate, has begun construction on the redevelopment of the former Quaker Oats facility located in Cumberland County. When completed, the building will deliver a total of 450,000+ SF of modern industrial space to a local market. NorthPoint Development purchased the Schuylkill Mall near Frackville, PA for $2 million in Q1 2017, and in Q2 announced the property will be closed by year end, fueling speculation that it might redevelop the property for an industrial use. We are currently tracking several redevelopment sites which are moving beyond concept and beginning to enter the development approval process.

Dermody Properties was also active in the market in Q2, in May selling 1 Ames Drive in Carlisle, PA to their existing tenant UPS for $55 million ($92/SF). The group acquired the Capital Business Center in Middletown, PA from Woodmont Properties for $76 million. They also began speculative construction on 1 million SF in Berks County, PA, and 480,000 SF in LogistiCenter at Logan in Gloucester County, NJ, adding to their 1 million SF BTS for Amazon at that park and bringing their construction across the total market to 2.5 million SF.

The regional vacancy rate for industrial product rose in Q2 by 40 basis points to 5.85%. Year-over-year, the vacancy rate has declined by 90 bps. Net absorption remained positive at 4.6 million SF. The market has nearly eclipsed 10 million SF in positive net at mid-year. Lease rates in the Lehigh Valley continue to rise as vacancy remains relatively low. Average Class A available space leases at approximately $5.75 per SF. Tenants in Central PA have yet to be subjected to dramatic rate increases with average asking rates for new Class A space hovering between $4.75/SF and $4.85/SF.

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Any questions regarding the Eastern Pennsylvania market please contact us at 717.695.3840 or 610.400.0499.