There aren't many encouraging signs for Philadelphia's industrial sector; almost every core fundamental, from supply to demand, is heading in the wrong direction.
Starting with overall vacancy, the rate spiked by 140 basis points year-over-year in the first quarter to 9.4 percent, as revealed in a market report from Savills.
"Southern NJ’s vacancy rate, at 11.6%, remained in the double digits for the sixth consecutive quarter, with vacancy concentrated around Salem County (37.6%) and Burlington County (11.0%)," the firm wrote in further context.
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Also, Southern Pennsylvania's performance was weak, with vacancy in the region hitting 8.6 percent, a 180-basis-point increase from the 12 months prior.
Net absorption, while positive at 1.8 million square feet, declined by 800,000 square feet. Demand was particularly soft in Southeastern Pennsylvania, where -390,684 square feet were absorbed.
Construction deliveries surged by 86 percent to 3.9 million square feet.
The one positive is that asking rental rates have advanced to $12.09 per square foot. However, that's just a one-cent increase from the 12 months prior, and it doesn't exactly induce a champagne gathering. Also, rents are down 1.5 percent from the previous three months. But in more encouraging news, Savills projects that the category will "remain elevated with developer loan obligations creating a floor for discounts."
Savills also thinks deliveries might slow down as soft demand and high interest rates could force developers to forgo groundbreakings over the next year.
However, the CRE firm sees plenty of more turbulence in the Philadelphia industrial sector, as the tariff policy from the Trump administration won't help bring down vacancy rates. It notes that "reshoring will take years to take effect." Additionally, leasing will take longer for larger properties exceeding one million square feet because tenants prefer occupying space in the 250,000 to 450,000 square foot range.
The top lease in the first quarter went to JD Logistics' 400,950 square foot deal in Southern, NJ. RefrescoBeverages US, and Printed Solid followed with their 247,401 square feet and 95,673 square feet deals, respectively, in the metro.
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