Newmark Grubb Knight Frank (NGKF) released its third quarter 2016 industrial reports for Greater Philadelphia and the I-81/78 Corridor this week. The reports detail another quarter of robust growth with tenancy gains across all industrial categories. NGKF reports that momentum in new speculative space breaking ground within the Greater Philadelphia region and the I-81/78 Corridor markets continues to build.
The Greater Philadelphia industrial market’s overall vacancy rate abated by 50 basis points quarter-over-quarter to a nine-year low of 7.8 percent. The region recorded 4.6 million square feet in positive net absorption in the third quarter, with 10 of the 11 tracked submarkets reporting occupancy gains. Greater Philadelphia industrial’s overall asking rent reached a seven-year high of $5.07 per square foot. Heightened demand and new speculative deliveries within the warehouse/distribution sector ticked up that sector’s average by an additional $0.07 from the prior quarter to $4.23 per square foot.
The Southern New Jersey market accounted for 54.3 percent of Greater Philadelphia’s industrial quarterly absorption with Burlington County the standout submarket.Senior Managing Director Kurt Montagano noted, “Burlington County,with its centralized location in the Mid Atlantic supply chain, is enormously attractive to ecommerce firms aiming to meet increased consumer demand. Amazon, DrJays.com and Jet.com all took possession of new spaces in Burlington County this quarter, with Amazon absorbing a 613,920-square-foot speculative warehouse. The next 12 months should see more speculative space breaking ground as developers rush to meet warehousing needs”. Also during the quarter, W.W. Grainger, Inc. occupied its newly-delivered 1.3-million-square-foot warehouse facility located at 400 Bordentown-Hedding Road.
Southeastern Pennsylvania was responsible for almost 2 million square feet in quarterly occupancy gains,which resulted in a record-low vacancy rate of 6.8 percent. The demand for warehouse/distribution product has kept its vacancy rate (7.4 percent) in single digits since the beginning of 2015. The Bucks County submarket was Southeastern Pennsylvania’s best performer for third-quarter 2016, accumulating 890,162 square feet in occupancy gains. A large portion of the absorption was attributed to Cooper Tire & Rubber’s occupancy of 740,880 square feet at 3000 AM Drive.
Quarter-to-quarter, New Castle County’s vacancy rate contracted by 50 basis pointsto 20.6 percent. Absorption rebounded after last quarter’s negative performance with 119,557 square feet in occupancy gains, a majority occurring in warehouse/distribution product. During the quarter, Anchor Plastics and Delaware Skills Center took a combined 34,823 square feet at 500 Ships Landing Way.
The I-81/78 Corridor industrial market continued to be ahotbed of tenant activity by ecommerce, food distributors, warehousing and logistics firms. Quarter-over-quarter, the market’s overall vacancy rate declined 120 basis points to 6.9 percent. Year-to-date absorption stood at 6.4 million square feet,52.4 percent higher than last year’s recorded year-to-date amount. The Central Pennsylvania and Lehigh Valley submarkets were the primary drivers of I-81/78 Corridorindustrial’s tenant activity. Central Pennsylvania and Lehigh Valley posted quarterly absorption of 1.9 and 1.8 million square feet, respectively. Starbucks’ occupancy of a 1.2-milliion-square-foot warehouse facility and FedEx’s move to a newly-constructed 312,356-square-foot distribution center cut Central Pennsylvania’s vacancy rate by 140 basis points from second-quarter 2016 to 8.7 percent. Lehigh Valley was the tightest submarket in the I-81/78 Corridor with vacancy at 4.5 percent. The Northeastern Pennsylvania market’s vacancy rate was just shy of 10.0 percent but it still produced 506,276square feet in positive absorption. This was mostly due to Hudson Bay Co.’s occupancy of 455,000 square feet at 25 Keystone Boulevard.
Strong market conditions continued to bolster developer confidence in moving forward with speculative development.Over the last ninety days, 2.1 million square feet of speculative projects broke ground withinthe I-81/78 Corridor industrial market.Speculative projects account for 9.8 million square feet of the total 13.7 million square feet of properties under construction. Senior Managing Director Stephen Bonge contends, “While a majority of speculative projects under construction remain unleased, there’s no need to panic. Demand for premium warehouse space has not abated and those projects will not remain vacant for long”. For example, Liberty Center II’s Lot 4 (650,000 square feet) and Lot 5 (1.2 million square feet) are two speculative projectsdue for delivery by the end of the year. The properties were bothpreleased this quarter by East Penn Manufacturing and Ryder Systems, Inc., respectively.
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 14,100 professionals operate from more than 400 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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