MACUNGIE, PA—Industrial submarkets throughout eastern Pennsylvania and southern New Jersey remain tight, with some vacancy rates at record lows and large pipelines of construction underway, panelists told attendees at the Philadelphia SIOR Chapter’s Industrial Property Summit at the Bear Mountain Creek Resort in this tiny rural town about 40 miles north of Philadelphia.
“We’re finally seeing some spec development in the Philadelphia suburbs which we haven’t seen in 10 years,” says Colin Flynn, SIOR, of Philadelphia-based The Flynn Company. “The suburbs are full of old product with lower ceilings, and they’re getting leased up and there’s nowhere for these clients to go.”
It’s local companies driving the suburban demand, not e-commerce or big box retail, he says.
“We don’t have the land for it,” he says. “So we’re seeing local companies just expanding because the economy is doing better.”
In central Pennsylvania’s I-78/I-81 corridor, the 2018 vacancy rate has been about 6.1%, and net absorption is nearly 12.5 million square feet, according to Mike Hess, SIOR, of CBRE, who chaired the panel on the state of the submarkets. Central Pennsylvania’s overall vacancy is even lower, at 4.9%, with 6.438 million square feet of net absorption and about 3.5 million square feet of construction in the pipeline, he says.
Among the hottest industrial markets in the Northeast is the Lehigh Valley, which has added millions of square feet of distribution center space, says Brian Knowles, SIOR, CCIM, of Lee & Associates‘ Fort Washington, PA, office. Absorption in the third quarter was just under 286,000 square feet, and vacancy is about 6.7%. A solid 7.63 million square feet of industrial space are in the pipeline, he says.
“We went from a Class B market four years ago to a Class A market,” he says. “What we have is a lot of product that really presents itself well to the smaller operators. There’s a lot more of that product coming online.”
The Northeastern Pennsylvania submarket has a 3.6% vacancy rate and 4.7 million square feet under construction, according to Bob Gude, vice president of development with Kansas City, MO-based NorthPoint Development. Net absorption was low in the third quarter, just topping 129,000 square feet, he says.
In South Jersey, much of the construction has been released, says Dave Thomas of Matrix Development.
“I think the highlight is really the vacancy rate of three percent as we’re measuring it,” Thomas says. “A lot of the construction under 4 million feet has already released, so it’s a very good market for development going forward.”
Companies unable to find suitable space in the Exit 8A submarket in central New Jersey are increasingly looking further south near Exit 6 in the Bordentown/Burlington area, he says.