Leasing activity remains healthy and vacancy rates continue to decline in the Philadelphia, I-81 and I-78 industrial markets, according to Cushman & Wakefield's third-quarter 2016 Industrial Marketbeat reports for the region. The commercial real estate services firm's Philadelphia research team also projects year-end increases in absorption as tenant demand for industrial product remains strong.
The Philadelphia industrial market's overall vacancy rate declined to 4.9 percent in the third quarter, a decline of 90 basis points from the third quarter of 2015.
"Overall absorption climbed to positive 6.4 million square feet, an increase of 73.0 percent from the same point last year," said Jared Jacobs, Cushman & Wakefield Research Manager. "Contributing to the rise in absorption were the completions of the 1.3 million-square-foot build-to-suit for W.W. Grainger at 400 Bordentown Hedding Road in Bordentown, N.J. and the 613,920 square-foot building leased by Amazon at 309 Cedar Lane in Florence, N.J."
Direct asking rental rates for warehouse and distribution space were up 0.9 percent compared to the third quarter of 2015, increasing to $4.28 per square foot.
Year-to-date leasing activity in the Philadelphia industrial market is at 8.4 million square feet, up 13.5 percent from this point last year. The largest transaction was the 740,880-square-foot lease signed by Continental Tire at 3000 AM Drive in Quakertown, PA.
Seven of the top 10 largest leases inked this quarter were in the Southern New Jersey market. Notable leases in Burlington County included the Camuto Group, which took 682,708 square feet at 32 Springside Road in Westhampton; Burlington Coat Factory's 510,566-square-foot lease at 400 Richards Road in Burlington; and Quality Packaging Specialists' 377,440-square-foot deal at 2020 Route 130 in Florence. In the Northern Delaware industrial market, Zenith Home Corp. renewed for 485,987 square feet at 400 Lukens Drive in New Castle.
Despite this robust activity, the overall vacancy rate is expected to rise next quarter as almost 1.0 million square feet of speculative construction - none of which is preleased - is scheduled to deliver in Southern New Jersey. However, asking rental rates for warehouse and distribution space are projected to increase by 2.5 percent by year-end 2016, and positive absorption is on pace to top the previous market high of 6.8 million square feet in 2005.
PA I-81 and I-78 Market
The I-81 and I-78 industrial market's overall vacancy rate declined 110 basis points year-over-year to 3.9 percent, the lowest vacancy in the market's history. Year-to-date leasing activity reached 15.2 million square feet, already eclipsing the previous annual high of 13.0 million square feet in 2014. The third quarter alone saw 8.6 million square feet of new leasing activity, 36.0 percent higher than the previous quarterly high in the third quarter of 2014.
"Three of the country's top 10 largest leases were signed in the I-81 and I-78 industrial market this quarter, the most of any market nationwide," noted Jacobs. "Verizon signed the largest lease of the third quarter, taking the 1.2-million-square-foot property at 8620 Congdon Hill Drive in Alburtis in Lehigh Valley."
Several other notable tenant occupancies fueled the increase in activity:
• Amazon took the 1.1million-square-foot building at 1610 Van Buren Road in Easton and East Penn Manufacturing leased 650,000 square feet at 8742 Congdon Hill Drive in Alburtis.
• Mattel broke ground on a 1.0 million-square-foot build-to-suit at 575 Old Forge Road in Jonestown and inked a short-term, 500,000-square-foot lease at 545 Old Forge Road.
• Post Foods leased 606,057 square feet at 1445 Eden Road in York and WSI occupied 423,300 square feet at 10874 2nd Amendment Drive in Glen Rock.
• Amazon took 399,500 square feet at 250 Enterprise Way in Pittston.
Overall absorption was 75.3 percent higher than this point last year, and overall asking rental rates increased by 11.3 percent over the past 12 months to an average of $4.53 per square foot.
Strong tenant demand is evidenced by the current occupancy of 96.1 percent, the best in history despite adding 17.2 million square feet of new speculative product since 2014. Speculative construction will remain robust through 2016 and is expected to continue over the next 12 to 18 months.
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