Industrial Real Estate and the Pennsylvania Pangaea
Eastern Pennsylvania’s industrial markets continue to thrive due to low vacancy rates, increased barriers to entry, demand by occupiers and the institutional capital community’s ever-increasing appetite for industrial product. While the specific submarkets have unique nuances associated with the local economic drivers, highway networks, taxation, and labor base, the overall demand by tenants and the capital community alike is driven by elementary economic rules of supply versus demand met by supply chain demand drivers. In a world that is buying a higher percentage of its goods online each and every year, this geography offers the unique ability to reach almost half of the U.S. population within a one-day truck drive and better one-day or two-day delivery service from the two major providers, UPS and FedEx.
This thriving market is technically four distinct submarkets inclusive of the Lehigh Valley, Northeastern, Central and Southeastern Pennsylvania. For those less familiar with the nomenclature of this geography, it’s easiest to think of the Lehigh Valley as the general vicinity of Easton through Bethlehem and Allentown and along I-78 past Hamburg. Central Pennsylvania is the region inclusive of Harrisburg, York, Carlisle, Chambersburg, Greencastle and Lancaster. Northeastern Pennsylvania is the combination of the MSAs including Pottsville, Hazleton, Wilkes-Barre and Scranton.
Cushman & Wakefield’s research is tracking an overall vacancy rate below 5 percent with a breakdown of each submarket as seen in the chart above. Although there is a variance from each market to the next, these differences may be attributed to a single large vacancy in some cases, or recent delivery of multiple spec developments in other cases. Regardless, these markets are more similar now than ever before as it relates to supply versus demand balance, as well as strong appetite by capital and increased barriers to entry. These combined factors have resulted in increased sale values, and we expect that trend to continue given the lack of oversupply seen in previous cycles. As a percentage of inventory, the amount of product under construction right now pales in comparison to the gross figures of 2007.
The various submarkets certainly resemble each other statistically, but they are also merging to provide equally viable options for new occupiers looking to open facilities in Pennsylvania. It is not uncommon for a tenant to be focused on the Lehigh Valley and end up signing a lease for a facility in Northeastern Pennsylvania or focused on Central Pennsylvania and land a deal in Southeastern Pennsylvania. The reciprocal scenarios would also be true. The markets have more synergy between them than ever before, making it feel like one big Eastern Pennsylvania Pangaea.
For our 12-person brokerage team covering this market, it is not uncommon to receive requests from investors or tenants to see “all of the important pockets of activity” in a single day. Without the use of a helicopter, it is practically impossible to see all of the action throughout these active submarkets. Historically, it was easier to respond to specific requests to evaluate a particular submarket. Today, it is critical to see all areas of Eastern Pennsylvania in order to fully comprehend the dynamics at work. Given this merging of the submarkets, do not be surprised to hear complaints from real estate brokers who log record mileage on their personal vehicles in 2017 and 2018!
— By Gerry Blinebury, executive managing director, Cushman & Wakefield. This article first appeared in the September 2017 issue of Northeast Real Estate Business magazine.