PHILADELPHIA-This region's industrial market absorbed more than 1.8 million sf during the third quarter of the year, according to data from the local office of Grubb & Ellis. As a result, the overall vacancy rate dropped a full point to 7.9%, its lowest level in more than two years, reports Matthew Wright, research services manager.

This marks "four consecutive quarters of positive absorption...demonstrating signs of sustained strength," Wright's report states. This is despite discouraging news from a survey by the Federal Reserve Bank of Philadelphia, which indicates that forward looking sentiment regarding manufacturing activity here in the next six months fell to its lowest level since the January 2001 recession. Wright concludes that this region's industrial market strength lies in its strategic location for distribution facilities. Growth is coming primarily from new demand from logistic and distribution-related end-users, he says.

The positive absorption is pushing rental rates up. The average asking rate for standard industrial product rose 35 cents per sf in third quarter to $4.56 per sf. The R&D/flex segment of the industrial market finished the quarter with a vacancy rate of 12.8%, a drop of 170 basis points from mid-year and average rents climbed 18 cents per sf to $8.08 per sf, triple net.

Average rates throughout the Pennsylvania counties exceed those in both Camden, NJ and New Castle, DE, where the rates for standard industrial space ended the quarter at $3.86 per sf and $4.11 per sf, respectively. At an average of $5.46 per sf, Chester County commanded the highest asking average in the region, according to the report.