REBusinessOnline

Eastern Pennsylvania Industrial Market: 2018 May be the Year to Beat

During the first half of 2018, the Eastern Pennsylvania industrial market has been anything but quiet. Fueled by occupier demand and the institutional capital community’s perpetual appetite for industrial product, there has been unprecedented activity on the transactional front, which is up significantly year-over-year. From a pure volume perspective, the market is on a trajectory to make this the most active year on record.

Unlike prior years where product starved capital markets would see less than a dozen quality trades in Pennsylvania, this year has proven to be more plentiful, with year-over-year sales volumes almost doubled for one-off offerings. Meanwhile, the mega transactions continue with pending portfolio and company sales like DCT to Prologis and GPT to Blackstone.

Connected Markets

While activity in specific submarkets ebbs and flows, the synergy between them is greater than ever before. In fact, the trend towards considering the Eastern Pennsylvania industrial market as a whole continues to gain traction. Whereas in the past, a tenant or investor may have been interested in evaluating a particular geographic region, today the various submarkets are providing equally viable options for those seeking to expand and new occupiers looking to open facilities.

Gerry Blinebury, Executive Managing Director, Cushman & Wakefield

One exception to the rule is Philadelphia and the surrounding marketplace. While the demand in Lehigh Valley on the I-81/78 corridor continues to be focused on big-box industrial, institutional capital is aggressively seeking opportunities for infill industrial and last-mile real estate on the Pennsylvania side of the Delaware River, versus locations with larger footprints on the New Jersey side.

At Cushman & Wakefield, brokers often refer to Philadelphia as “the hole in the donut.”

Looking at a map of Eastern Pennsylvania, there is significant development on all sides of the submarket, including Lehigh Valley, Central Pennsylvania, Southern New Jersey and Baltimore. All are doing extremely well in terms of a supply and demand balance. However, in Philadelphia, where the population density is unmatched in the state and warehouse operations can benefit from the dense labor market, there is virtually no new construction in the pipeline with the exception of pending ground breakings.

Undoubtedly, there is significant pent-up demand in the submarket, despite issues such as barriers to entry and the value of land for uses other than industrial. Recently, we have begun to see signs of a crossover from New Jersey to Pennsylvania, where approximately 5 million square feet of new development has been identified or received approvals this year. Although it will likely take three to five years to develop, the fact that this much square footage is coming into production represents a shift in focus on the part of developers as a result of supply chain demand drivers.

Equal Access, Lower Cost

The success story in the Lehigh Valley continues. The submarket provides a lower-cost alternative to the Northern New Jersey marketplace with an equal access solution that includes proximity to the ports in New York and New Jersey. However, increased barriers to entry are beginning to push development farther away from major highways.

Demand drivers are different in Central Pennsylvania, where supply and demand fundamentals are in balance and the availability of land along the I-81 corridor means it’s easier to develop versus infill locations in Lehigh Valley and elsewhere. Several million square feet of new construction is scheduled for completion before years end, with an equal match in tenant demand.

On a final note, while it may be too soon to call it a trend, there has been a notable increase this year in home improvement sector activity. In a market that has been dominated by e-commerce, Lowe’s, Home Depot, Kohler and Ace Hardware have taken blocks of space in excess of one million square feet.

Content Partners
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Walker & Dunlop

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