PHILADELPHIA, Jan. 26, 2017 - The Philadelphia and I-81 and I-78 industrial markets finished the year with record-setting leasing activity and falling vacancies, according to Cushman & Wakefield. The commercial real estate services firm's Philadelphia research team released its fourth-quarter 2016 Industrial MarketBeat reports, which also project continued increases in new construction activity through 2017.
The Philadelphia industrial market's overall vacancy rate declined to 4.2 percent in the fourth quarter of 2016, down 140 basis points from the same period in 2015.
"Overall absorption increased to 8.5 million square feet, the highest annual total since 2005," said Jared Jacobs, Cushman & Wakefield research manager. "This rise in positive absorption is due to the 4.1 million square feet of new construction that delivered in 2016, with 99.7 percent of that inventory currently occupied."
Leasing activity was also robust, with 12.5 million square feet of new activity, the highest since 2005. Overall asking rental rates for warehouse and distribution space declined by 0.2 percent over the past 12 months to $4.21 per square foot.
Nine of the 10 largest leases inked in 2016 were in the Southern New Jersey market.
• In Burlington County, Seldat Distribution subleased 1.0 million square feet at 1900 River Road in Burlington, the Camuto Group took 682,708 square feet at 32 Springside Road in Westhampton and a confidential tenant leased the 613,920-square-foot spec building that delivered in 2016 at 309 Cedar Lane in Florence.
• Notable leases in Gloucester County included a confidential tenant preleasing the 1.0-million-square-foot proposed building at 2651 Oldsman Creek Road and XPO Logistics leasing 393,120 square feet at 2810 Oldmans Creek Road, both in Logan Township. CSI took 180,000 square feet at 100 Friars Lane in Thorofare.
In the Philadelphia suburbs, the year's largest lease signing was Continental Tire taking 740,880 square feet at 3000 AM Drive in Quakertown.
Investment sales activity was also strong in 2016, with 75 buildings transacted totaling 7.3 million square feet. This brings the total number of buildings sold over the past two years to 172, totaling 18.8 million square feet, 42.2 percent more than the market's activity from 2010 to 2014.
The outlook for 2017 continues to be positive, with new construction activity expected to increase in response to the decline in vacancy and ongoing demand for product as new buildings delivered to the market in 2016 were nearly 100 percent occupied. The bulk of the activity will once again occur in Southern New Jersey, with multiple projects expected to break ground in early 2017.
PA I-81 and I-78 Market
"In 2016, the I-81 and I-78 industrial market produced the highest annual totals on record for leasing activity," noted Jacobs. "A total of 19.3 million square feet was leased, with positive absorption of 16.7 million square feet and 17.3 million square feet of new construction delivered."
The market's overall vacancy rate declined 50 basis points year-over-year to 4.7 percent in the fourth quarter.
Direct asking rental rates for warehouse and distribution space also reached record-setting highs in the fourth quarter, rising 1.5 percent from the previous market peak to $4.63 per square foot. Asking rents increased primarily due to the 13.8 million square feet of speculative (spec) product that delivered in 2016, which quote asking rates as high as $5.35 per square foot.
All three submarkets saw strong leasing activity in the fourth quarter, with three leases signed in Central PA that exceeded the 1.0-million-square-foot mark. Starbucks leased the 1.2-mililon-square-foot building at 1605 Bartlett Drive in Manchester; Whirlpool took 1.1 million square feet at 100 Fry Drive in Mechanicsburg; and Mattel leased 1.0 million square feet at 575 Old Forge Road in Jonestown.
Several other significant leases fueled the increase in activity:
• Verizon leased 1.2 million square feet at 8620 Congdon Hill Drive in Alburtis in Lehigh Valley.
• Amazon took the 1.1 million-square-foot building at 1610 Van Buren Road in Easton, and East Penn Manufacturing leased 650,000 square feet at 8742 Congdon Hill Drive, also in Alburtis.
• In Northeastern PA, Chewy Inc. signed for 808,160 square feet at 600 New Commerce Boulevard; Hudson's Bay Company took 617,500 square feet at 25 Keystone Boulevard in Pottsville; and Amazon took 399,500 square feet at 250 Enterprise Way in Pittston.
Construction activity shows no signs of slowing, with 13.2 million square feet currently under construction, 8.7 million square feet of which is being constructed on spec. This is expected to drive the asking rental rate average further northward by year-end 2017. The overall vacancy rate is expected to remain stable despite the influx of available inventory, as demand in new spec product remains robust.