Positive absorption in Philadelphia's industrial market contributed to an overall vacancy rate decline for the year, while construction activity showed no sign of slowing in the I-81 and I-78 industrial market, according to Cushman & Wakefield. The commercial real estate services firm's Philadelphia research team released its fourth-quarter 2017 Industrial MarketBeat reports for the region.
"The Philadelphia industrial market's overall vacancy rate declined to 4.0 percent in the fourth quarter of 2017, down 20 basis points from the fourth quarter of 2016," said Jared Jacobs, Cushman & Wakefield's research manager. "While overall net asking rental rates for warehouse and distribution space in the Philadelphia MSA declined by 2.8 percent year-over-year, rates in the Southern New Jersey industrial market increased by 5.3 percent to $4.50 per square foot in 2017."
Absorption was positive for the year, with the Southern New Jersey industrial market accounting for 65.8 percent of the 4.9 million total square feet absorbed. New construction also remains concentrated in Southern New Jersey, where 3.1 million square feet accounted for 97.1 percent of the Philadelphia MSA's total construction for 2017.
"Overall market fundamentals have remained strong throughout the Southern New Jersey Industrial market as the developer community has been disciplined relative to the timing of their projects," noted John Gartland, managing director of the Industrial Brokerage Group. "Strong labor statistics, PILOT programs and competitive pricing for functional Class A product have created a very attractive environment for tenants looking to service the Pennsylvania, New Jersey and New York markets."
For the fifth consecutive year, the Burlington County submarket led the way in leasing activity. Tightening market conditions to the North and the expansion of the New Jersey Turnpike between Exits 6 and 8A both have been major contributors, with tenants relocating to this submarket from as far North as Secaucus. B&H Photo Video leased 577,200 square feet at the newly constructed building at 400 Cedar Lane in Florence; Medline Industries, Inc. took just over 300,000 square feet at 100 Highland Drive in Westampton; and PFG Customized Distribution renewed for 127,340 square feet at 500 Highland Drive in Westampton.
Amazon signed the largest lease of the year, taking the entire 652,411-square-foot building under construction at 240 Mantua Grove Road in West Deptford in Gloucester County. The submarket saw robust activity, with new leases including Kenco Group, Inc. signing for 401,008 square feet at 395 Pedricktown Road in Logan Township and LKQ Corp. leasing 183,570 square feet at 119 Crown Point Road in Thorofare.
While asking rents exhibited minimal growth in the Philadelphia suburbs in 2017, the Cushman & Wakefield report projects rents should trend upwards in the Southern New Jersey industrial market in 2018. Vacancy also is expected to remain stable, as 76.3 percent of the 2.0 million square feet of new speculative construction scheduled for delivery this year has been preleased.
PA I-81 and I-78 Market
"Leasing and deal activity shows no signs of slowing in the I-81 and I-78 industrial markets as many tenants struggle to find ample space options," said Executive Director Adam Campbell. "We are currently tracking close to 25 million square feet of tenant activity north of 100,000 square feet, and with supply finally catching up with this ongoing demand, we should see yet another solid year-end leasing number for 2018."
Construction activity continues to be robust, with 11.4 million square feet of completed construction in 2017 and nearly 19.0 million square feet set to deliver in 2018. The 7.9 million square feet of new speculative construction delivered helped drive overall net asking rental rates for warehouse and distribution product up by 3.2 percent year-over-year.
Overall vacancy increased by 40 basis points year-over year to 5.1 percent in the fourth quarter of 2017. "While overall absorption declined to 11.3 million square feet in 2017, 7.8 million square feet of positive absorption is already scheduled to absorb in 2018," Jacobs noted. "With 14.3 million square feet of new spec construction scheduled for completion next year, overall asking rents are projected to continue to climb in 2018. However, despite strong tenant demand for new product, we expect the vacancy rate to rise slightly from current historical lows in 2018."
Although the market's 18.5 million square feet of new leasing activity fell just short of 2016's total of 19.3 million square feet, the Central PA and Northeastern PA submarkets reached the highest annual totals on record with 10.1 million square feet and 5.4 million square feet, respectively.
The bulk of the market's large transactions in 2017 were in the Central PA submarket, with four leases of 1.0 million square feet or more. General Mills renewed for 1.4 million square feet at 350 North Lingle Avenue in Palmyra and Ace Hardware signed a new lease for 1.1 million square feet at 139 Fredericksburg Road in Fredericksburg. In Carlisle, Kohler leased the 1.0-million-square-foot building at 221 Allen Road and Syncreon signed a build-to-suit lease for the 1.0-million-square-foot building under construction at 100 Goodman Drive.
In Northeastern PA, American Tire inked a 1.0-million-square-foot lease at the Northeast Logistics Center in Tobyhanna and a confidential tenant leased just under 843,000 square feet at 550 New Commerce Boulevard in Wilkes-Barre. In Lehigh Valley, the largest new lease signed was by XPO Logistics (Zara) for just over 628,000 square feet at the newly constructed building at 1611 Van Buren Road in Easton.