PHILADELPHIA, July 19, 2017 - Demand for industrial space continued to build momentum in the Philadelphia and I-81 and I-78 markets during the second quarter of 2017, driving overall asking rents to their highest level since the beginning of 2015 in the Philadelphia market, according to Industrial MarketBeat reports released by Cushman & Wakefield's Philadelphia research team. The commercial real estate services firm projects that substantial construction activity in the Southern New Jersey submarket will help drive a robust second half of the year.
"The Philadelphia industrial market's Q2 overall vacancy rate declined to 3.7, down 170 basis points from the same quarter of last year, while overall asking rental rates have increased 9.5 percent from a year ago to $4.95," said Jared Jacobs, Cushman & Wakefield's research manager. Asking rental rates for warehouse and distribution space rose 1.4 percent to $4.25 per square foot. "The market reflects growing confidence in Philadelphia Metropolitan Area's economy, which ended the second quarter with a 4.6 percent unemployment rate as non farm employment rose 1.5 percent year-over-year."
Overall net absorption remained strong with 2.6 million square feet coming off the market, even as developers delivered 1.3 million square feet of new construction with another 3 million square feet underway - all of it in Southern New Jersey. "Investors believe in this market as illustrated by 25.8 percent increase in investment sales from a year ago as they acquired 36 buildings totaling 3.9 million square feet," Jacobs said.
While new leasing was healthy, most of the leases signed in the second quarter were renewals. Jet.com signed the biggest lease of the quarter, renewing for 346,188 square feet at 200 Birch Creek Road, Bridgeport, in southern New Jersey. In Delaware's New Castle County, Aearo Technologies signed a new lease for 97,002 square feet at 405 Pencader Drive, in Newark, while Best Warehousing and Transportation renewed for 216,593 square feet at 350 Anchor Mill Road in New Castle. In Lower Bucks County, Sparks Exhibits Holding Corp. renewed 115,200 square feet at 3800 Marshall Lance, in Bensalem and Amazon renewed its lease for 104,704 square feet at 2251 Cabot Boulevard West in Langhorne.
The Cushman & Wakefield report projects continued strength in construction in Southern New Jersey through the end of the year and into 2018. While the researchers anticipate limited construction activity in the Philadelphia suburbs and Philadelphia County, they believe overall rental rates will continue to climb in the second half.
PA I-81 and I-78 Market
The I-81 and I-78 Corridor continued to generate new construction in the second quarter with 5.6 million square feet of new spec space delivered to the market this year, approximately 70 percent of it vacant at the end of the quarter. The spec construction helped drive a slight increase in overall vacancy to end the quarter 5.3 percent, 20 basis points higher than a year ago.
"Construction remains strong with 7.6 million square feet delivered to the market so far this year," Jacobs said. "However, even with all this new space, demand was solid and pushed overall asking rental rates up by 3.7 percent from a year ago to $4.74 per square foot. The demand generated 6.9 million square feet of positive absorption, a 1.5 percent year-over-year increase. Approximately 25 million square feet of new construction has taken place in the past 18 months."
The Central PA submarket led the region in leasing activity with 4 million square feet of new activity so far this year, including two leases of more than 1.0 million square feet in the second quarter. Ace Hardware leased 1.1 million square feet at 139 Fredericksburg Rd. in Fredricksburg. Kohler leased 1.0 million square feet at 221 Allen Rd. in Carlisle.
In Lehigh Valley, NFI signed the largest lease of the quarter for 413,750 square feet at 9606 West Hills Court in Fogelsville. In the Northeastern PA submarket, Pactiv signed a 205,622-square-foot lease at 63 Green Mountain Rd. in Hazelton.
The Cushman & Wakefield research team sees no sign of construction slowing along the I-81 and I-78 corridor with 12.4 million square feet in the pipeline for delivery over the next 12 months. However, they anticipate overall vacancy to remain stable and asking rental rates to continue to climb as the spec space continues to lease quickly.
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