Industrial fundamentals in the Greater Philadelphia area, which includes Southern New Jersey, Bucks County and Lehigh Valley, are starting to weaken as deliveries surge — but the forecast is bullish in the short-term.
Most notably, vacancy spiked by about 2.21 percentage points year-over-year to 8.74 percent in the third quarter, a market report from Colliers shows. This was "driven by speculative construction deliveries and an increase of direct and sublease space returning to the market."
While net absorption remained positive at 590,000 square feet, that number is down significantly from the 3.44 million square feet posted in the 12 months prior.
Also, Colliers noted that leasing activity stayed "muted," as tariffs and economic uncertainty scared away activity in Philadelphia's industrial sector. However, there were some big ones, including JW Fulfillment's 705,900 square foot new lease in Southern New Jersey. The next two biggest deals, also in the same submarket, include ofi North America and JD.com striking deals for 574,480 square feet and 303,750 square feet, respectively.
The lackluster results came as deliveries more than doubled to 1.65 million square feet in the third quarter.
However, investors can take a couple of positives out of the report. One is construction fell considerably to seven million square feet, from 17 million square feet. Also, leasing rates, while only up modestly, increased by four cents per square foot NNN to $11.18.
Plus, Colliers provided mostly an upbeat forecast. It predicts that vacancy will decline in the fourth quarter, with leasing rates stabilizing and potentially increased leasing momentum.
"Asking rents may continue to show modest fluctuations, but a downward trend in pricing is not anticipated, as underlying fundamentals improve," the CRE firm said.
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