The Philadelphia regional industrial market extends outward as the Pennsylvania Distribution Corridor, encompassing the Lehigh Valley, Harrisburg, Wilkes-Barre, and Scranton. This corridor is generally seeing an increase in activity in most categories, especially logistics. That is particularly the case for the largest industrial transactions — those of half-million square feet or more.
For example, recent major leases have included Unilever’s 1.3 million-square-foot warehouse/distribution lease completed by Cushman & Wakefield in Newville, just south of Carlisle. Additionally, Crayola Crayons recently announced that it will be going into a new 800,000-square-foot facility to be constructed in the Bethlehem Commerce Center.
A corresponding trend, fueled by the demand for big-box warehousing/distribution space, is construction of speculative developments of significant size. Five projects are already under construction: Liberty Property Trust is developing a 1.2 million-square-foot building within the Bethlehem Commerce Center in Bethlehem and a 972,000-square-foot facility in Carlisle; Trammell Crow and USAA formed a joint venture to develop a 700,000-square-foot facility in Mountain Creek Distribution Center in Carlisle; Griffin Lane is developing the 228,000-square-foot Lehigh Valley Tradeport in Lower Nazareth Township; and Exeter Property Group is building a 280,000-square-foot building in Palmer.
There is more to come in the near-term. At least two more speculative projects have been proposed in Allentown by ProLogis and Panattoni.
Property values are strong currently. Rents, for the most part, have totally recovered in this post-recession economy. There are some exceptions: Some spaces in certain sizes and submarkets that have been vacant for some time are seeing strong competition to find tenants, so those rents have not recovered.
But overall, rents have recovered wherever there is a degree of supply shortage, as indicated by the amount of speculative development we’re seeing. Asking rents are now between $4.15 and $4.40 per square foot, which is as high as they have ever been.
At the same time, overall vacancy rates have been consistently trending downward to the point where the rate is 7.9 percent in the Lehigh Valley right now, and 9.6 percent for the entire Pennsylvania Distribution Corridor. As a yardstick, 5 percent to 6 percent vacancy is classified as a “shortage.” In some categories of space, we do have a shortage, and in general we are trending toward short supply right now.
The dominant industry continues to be logistics, driven by Pennsylvania’s geographic location. (The Distribution Corridor is a one-day truck drive to approximately 35 to 40 percent of the population of the United States.) At the same time, corporations continue to shift their logistics toward more super-regional distribution centers, taking a million-square-foot building, for example, to service the entire Northeast/Mid-Atlantic region of the U.S., and replicating that in other regions of the country.
Pennsylvania competes very favorably with New Jersey, Maryland and other states because of its geographic location for warehousing/distribution. The metrics to locate in Pennsylvania, if a company has a broad distribution pattern, are very favorable, and that will continue to drive the regional industrial market.
— Stephen Cooper is a senior director with Cushman & Wakefield, Inc.