Newmark Knight Frank released its fourth quarter 2017 reports for the Greater Philadelphia and the I-81/78 Corridor industrial markets. The combined markets closed the fourth quarter with 2.2 million square feet of occupancy gains and 15.9 million square feet of positive absorption for the year. Quarter-over-quarter, the combined vacancy rate stayed steady at 6.8 percent as the market, especially in Southeastern Pennsylvania, remained extremely tight. Several buildings also delivered this quarter, the majority of which were warehouse/distribution space: two warehouse buildings delivered in the Southern New Jersey market totaling 0.67 million square feet, and two warehouse buildings delivered in the I-81/78 Corridor market totaling 1.62 million square feet. The I-81/78 Corridor continued to capture the majority of the construction pipeline; 11.0 million square feet of the combined markets’ 16.0 million square feet under construction, is warehouse space.
The Southern New Jersey market recorded only 310,194 square feet in positive absorption, the lowest quarterly absorption in two years. Still, the year-to-date absorption of 5.8 million is almost equivalent to 2016’s 5.9 million. The Burlington and Camden County submarkets drove absorption this quarter, posting occupancy gains of 192,716 square feet and 181,048 square feet, respectively. The Gloucester County submarket posted negative absorption of 63,570 square feet. Quarter-over-quarter, overall vacancy in the market increased 30 basis points to 4.3 percent. While vacancy in Burlington County stayed level at 3.6 percent and Camden County fell 50 basis points to 2.9 percent, the Gloucester County submarket rose 190 basis points to end the year at 7.3 percent. The rise in vacancy was attributed to 480,480 square feet being vacated at 395 Pedricktown Road; Kenco Logistics plans to occupy the property in its entirety in early 2018. Kurt Montagano, NKF senior managing director, had this to say on the health of the market,“Activity remains high, driven mostly by logistics and e-commerce companies. Rental rates are also climbing, but remain low enough to attract companies from Northern New Jersey as even higher rates there drive businesses south.”
In the Delaware market, tenant activity picked up again in the warehouse sector after a slow third quarter. The sector reported 144,920 square feet in positive absorption, lowering the vacancy rate by 130 basis points to end at 7.3 percent. With the increased activity, warehouse and R&D/flex lease rates both rose, moving up $0.26 to $4.81per square foot and $0.25 to $6.08 per square foot, respectively.Overall rents in Delaware rose $0.10 to $4.54 per square foot as general industrial rents declined along with activity.
Southeastern Pennsylvania’s vacancy rate remained at 6.8 percent for the sixthconsecutive quarter. According to Eustace Wolfington, NKF senior managing director, “While activity in the market remains high, industrial sales and leasing is hampered by a lack of product. Build-to-suit opportunities exist, but for prospects with immediate needs, the timing is problematic.” The fourth quarter closed with 393,863 square feet in positive absorption for the market, but only 134,804 square feet for the year. Lancaster and Montgomery Counties posted the largest quarterly occupancy gains, with 207,945 square feet and 203,249 square feet of positive absorption respectively. Large movements included Steel-Tec occupying 43,979 square feet at 167 Greenfield Road in Lancaster County and Provident Marketing occupying 132,405 square feet at 330 S Warminster Road in Montgomery County. While vacancy has remained flat, industrial lease rates have continued to rise, reaching a new high of $5.47 per square foot, an increase of $0.13 per square foot over the previous quarter. The warehouse/distribution sector was the primary driver, as e-commerce demand increased the average lease rate $0.65 to end the year at $4.69 per square foot.
Vacancy for I-81/78 Corridor warehouse/distribution properties stayed steady in the fourth quarter of 2017 to end the year at 6.7 percent, down 20 basis points from the end of 2016, despite the addition of 9.2 million square feet of new space. Tim Brogan, NKF senior managing director, noted, “Construction continued steadily in the I-81/78 Corridor warehouse market, just barely keeping up with demand. 1.6 million square feet delivered this quarter, with 11.0 million in the pipeline, all of which slated for warehouse/distribution space as the e-commerce boom continues.” Rents for warehouse product rose slightly, going up $0.07 to end the fourth quarter at $4.38 per square foot. Overall, the Central Pennsylvania submarket recorded 1.2 million square feet of positive absorption as Kohler occupied one million square feet at 225 Allen Road. Absorption was smaller in the Lehigh Valley and Northeastern Pennsylvania submarkets, but was still positive. Lehigh Valley posted 169,349 square feet in occupancy gains,attributed to Air Liquide’s occupying105,000 square feet at 1379 South Delaware Drive, while Northeastern PA had just 24,855 square feet of absorption.
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