Newmark Grubb Knight Frank (NGKF) released its second-quarter 2016 industrial reports for Greater Philadelphia and the I-81/78 Corridor this week. The reports detail another quarter of robust growth in both supply and demand for each market. Both regions realized eight-year records this quarter; vacancy dropped within the Greater Philadelphia market to the lowest point since 2008, and rent appreciation in the I-81/78 Corridor brought pricing to parity with pre-recession levels.
In the Greater Philadelphia region, overall vacancy fell 10 basis points from the previous quarter to 8.2 percent, due to 1.7 million square feet of new occupancy outpacing construction deliveries. In keeping with the general pattern of tenancy growth distribution throughout the region,the lion’s share of demand was attributed to warehouse space, while flex space experienced moderate gains and manufacturing space suffered slight losses. Southern New Jersey’s robust industrial market accounted for nearly 70 percent of the total net absorption this quarter. The most notable move-in was H&M, which occupied its new 739,315-square-foot built-to-suit facility at 1600 River Road, located in Burlington County. NGKF Senior Managing Director Kurt Montagano noted that, “Strong demand growth from the retail sector, both traditional and e-commerce, as well as third-party logistics companies that frequently support retailers, will continue to fuel the momentum of Southern New Jersey’s industrial market.” Indeed, in the latter half of the year, Amazon will occupy the 613,920-square-foot warehouse at 309 Cedar Lane, which was delivered this quarter, and W.W. Grainger will move into its 1.2-million-square-foot facility at 400 Bordentown Hedding Road, after construction is completed next quarter. These occupancies will mitigate the one notable retraction from the region this year. “The Sports Authority bankruptcy will likely lead to adding 416,000 square feet of space to the Southern New Jersey market once its liquidation is complete,” said Montagano.
Elsewhere in the Greater Philadelphia region, Southeastern Pennsylvania accumulated 638,921 square feet in new tenancy over the past three months, compressing vacancy 20 basis points quarter-over-quarter to 7.1 percent. Two occupancies accounted for over half of the region’s net gains, and both occurred in Berks County. Samsung expanded into the remaining 246,000 square feet at 41 Martha Drive, and East Penn Manufacturing moved into its newly delivered 133,232-square-foot facility at 220 West State Street.
New Castle County, Delaware, experienced a negative net absorption of 149,469 square feet in the second quarter. Vacancy increased to 21.1 percent as a consequence oftwo significant retractions: Foxfire Printing and Publishing moved its operations out of state and relinquished a total of 102,000 square feet in two locations, and Encompass Elements downsized out of 95,000 square feet at 1500 Johnson Way.
Average asking rents across the Greater Philadelphia region essentially moved sideways, increasing only $0.02 quarter-over-quarter to stand mid-year at $4.96 per square foot. In contrast, the I-81/78 Corridor experienced the largest quarterly growth in average asking rents since 2007, up $0.14 from first-quarter 2016 to $4.30 per square foot. Additions of newly delivered Class A speculative warehouse space to the supply pool have come at an accelerated clip since the third quarter of 2015, and as such, rents for that sector have increased 8.9 percent year-over-year.
This quarter, 2.4 million square feet of speculative projects delivered in the I-81/78 Corridor, eclipsing the 2.0 million square feet of tenancy gainsmade over the past three months. Vacancy increased 10 basis pointsto 8.1 percent. Among the notable tenants contributing to absorption this quarter were OHL, which occupied 330,000 square feet at 10 Emery Street in the Lehigh Valley, and Allen Distribution, which occupied 150,000 square feet at its recently purchased building, 1225 South Market Street, in Central PA.
While speculative construction deliveries have outpaced absorption for the past four quarters in the I-81/78 Corridor, there was increased leasing activity both quarter-over-quarter, and year-over-year, especially for recently delivered speculative product. Among the notable transactions in the past three months were leases signed by UPS and Central Garden & Pet at First 33 Commerce Center, bringing the 584,760-square-foot, two-building speculative project, which delivered in the fourth quarter of last year, to fully leased. As NGKF Senior Managing Director Tim Brogan pointed out, “Consumer spending is up and regional job growth is strong. The current pace of construction activity is still in line with the strong demand for Class A warehouse/distribution space in the region.”
About Newmark Grubb Knight Frank
Newmark Grubb Knight Frank is one of the world's leading commercial real estate advisory firms. Together with London-based partner Knight Frank and independently-owned offices, NGKF's 12,800 professionals operate from more than 370 offices in established and emerging property markets on six continents.
With roots dating back to 1929, NGKF's strong foundation makes it one of the most trusted names in commercial real estate. NGKF’s full-service platform comprises BGC’s real estate services segment, offering commercial real estate tenants, landlords, investors and developers a wide range of services including leasing; capital markets services, including investment sales, debt placement, appraisal, and valuation services; commercial mortgage brokerage services; as well as corporate advisory services, consulting, project and development management, and property and corporate facilities management services. For further information, visit www.ngkf.com.
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BGCP). BGC also has an outstanding bond issuance of Senior Notes due June 15, 2042, which trade on the New York Stock Exchange under the symbol (NYSE: BGCA). BGC Partners is led by Chairman and Chief Executive Officer Howard W. Lutnick. For more information, please visit www.bgcpartners.com.
