Philadelphia Warehouse Inventory Fails to Keep Up with Demand
The combined greater Philadelphia industrial markets closed 2018 with 718,266 square feet of positive absorption, according to research from NKF. Year-over-year, overall vacancy declined 20 basis points to 5.5 percent, while warehouse vacancy increased 140 basis points to 6.3 percent. 3.4 million square feet delivered over the past twelve months with 2.3 million square feet designated as warehouse space.
The Southeastern Pennsylvania industrial market closed the year with a total of 264,511 square feet in negative absorption. Year-over-year, total vacancy for all property types increased 70 basis points to 6.2 percent. Philadelphia County accounted for a majority of Southeastern Pennsylvania’s occupancy gains, closing the year with 854,488 square feet of positive absorption. This was largely due to significant gains in occupancy that occurred in the first quarter. During the first three months of the year, Dependable Distribution moved into 332,640 square feet at 9801 Blue Grass Road and 185,000 square feet at 11200 Roosevelt Boulevard. In addition, Rainbow moved into 365,000 square feet at 2951 Grant Avenue, also in the first quarter.
The negative absorption in the Southeastern Pennsylvania suburban market is not a sign that demand has slowed, quite the opposite. Ecommerce and distribution companies are aggressively seeking high-bay warehouse space to accommodate consumer demand for same-day delivery. So much so, that there has also been an increase in developers searching for viable land parcels on which to build speculative warehouse buildings.
There is ongoing speculative construction in all the counties surrounding and including Philadelphia County. In December, Urban Outfitters announced that it had preleased a 309,000-square-foot warehouse under construction at Bristol Commerce Center in Bucks County. Also in Bucks County, construction is underway on a 114,400-square-foot warehouse and a 145,800-square-foot warehouse.
Southeastern Pennsylvania’s overall average direct asking rental rate, at $5.54 per-square-foot, remained flat from the fourth quarter of 2017. However, the average direct asking rental rate for warehouse space, at $4.82 per-square-foot, was up $0.08 from the prior quarter and $0.12 per-square-foot higher than one year ago. There are pockets in the market, such as King of Prussia and southern Delaware County, that are asking $6.50 per-square- foot and above for warehouse space.
Strong South Jersey Demand
The Southern New Jersey market recorded a total of 654,022 square feet of positive absorption for 2018. This time last year, the market reported 5.8 million square feet of positive absorption.
“There is still strong demand, particularly for Southern New Jersey warehouse product, from New York City and Northern New Jersey tenants attracted by the market’s comparatively less expensive rental rates,” says Kurt Montagano, NKF senior managing director. “However, these incoming tenants are encountering fewer space options.”
The overall vacancy rate for all property types, at 4 percent, remained flat from the first quarter of 2018. During the fourth quarter, NDS occupied 95,473 square feet at 1651 River Road, while Apli moved into 95,500 square feet at 499 Commerce Drive. Both properties are located in Burlington County.
The average direct asking rental rate for warehouse space increased $0.16 per-square-foot quarter-over-quarter to $4.74 per-square-foot. Rental rates for new warehouse space in central and southern Burlington County average around $6.25 per-square-foot, with some spaces commanding rents as high as $8.00 per-square-foot.
Vacancy in the New Castle County, Delaware, industrial market declined for a tenth consecutive quarter. Warehouse vacancy is very tight closing the fourth quarter at 3.2 percent. Year-over-year, the average direct asking rent for warehouse space increased $0.27 per-square-foot to $5.05 per-square-foot.
New Castle County’s warehouse inventory will expand with the redevelopment of the Boxwood site. In the fourth quarter, Harvey Hanna & Associates began the demolition of the 2.8-million-square-foot former General Motors plant and will replace it with 3 million square feet of distribution space spread over four buildings.