(To read more on the industrial market, click here.)

PHILADELPHIA-”The region’s industrial market is stronger than ever,” says Robert Walters, senior managing director of the locally based mid-Atlantic region of CB Richard Ellis. He’s not alone in that assessment.

Peter Greenhalgh, director of the industrial division in the local office of Cushman & Wakefield, tells GlobeSt.com, the market has “tightened terrifically. It’s the tightest it’s been in 20 years.”

According to CBRE’s first-quarter data, the area’s overall industrial vacancy is just under 8.4% and, in nine of the area’s 17 counties, the rate is below 9%. Grubb & Ellis data for first quarter puts the overall vacancy rate among nine area counties at 7.8%, while a Cushman & Wakefield report for the same quarter, using a slightly different configuration of counties, says direct vacancy for the area is 9.8%, while overall vacancy crept back to 10.2%.

Nevertheless, Greenhalgh says, the market remained healthy with over 2.5 million sf in leasing activity following a banner 2005 that saw more than 6.8 million sf taken from the market. “With rising rents, following a flurry of activity last year, a minor leveling of the market in the early stages of 2006 was not to be unexpected. There’s not a lot to show people and land costs are getting high. Flex development is competing with office and even residential.”

“The large industrial parks are, for the most part, full,” Steve Bonge, SVP in the Grubb & Ellis King of Prussia office, tells GlobeSt.com, “There are still opportunities, but land costs in the Lehigh Valley have probably risen between 30% and 40% in the past year, and between 15% and 20% in the Harrisburg/Carlisle market.” As a result of rising land and construction costs, he says, rent rates will also rise. “Along the I 81 corridor and I 78 in the Lehigh Valley, rates are between $4.25 per sf and $4.70 per sf,” which he says represents an increase of from 75 cents to $1 per sf over the year before.

The most significant industrial market activity occurred in Central Pennsylvania, according to Walters. The vacancy rate in that submarket is slightly less than 5.8%, down from 6.1% at the end of 2005. Its vacancy rate is the lowest of all in the area. More than 2.9 million sf of additional space is under construction in the Central Pennsylvania and Lehigh Valley submarkets combined, according to CBRE research. And another 19.5 million sf of construction is proposed for these two areas.

“Prominent retailers and regionally focused distribution and logistic providers are the targeted tenants for the majority of development underway and planned,” Walters says. He adds that there is an increase in tenants’ size requirements as companies consolidate warehouse and distribution operations under one roof.

The CBRE research puts the average asking industrial rental rate in Central Pennsylvania at $3.87 per sf. The submarket encompasses Cumberland, Dauphin, Franklin, Lancaster, Lebanon and York counties. The average asking rate in the Lehigh Valley, which includes Lehigh and Northampton counties, is $4.07 per sf.

“Strategically located Keystone Opportunity Zones in Philadelphia County and state-of-the-art big box warehouse facilities in Central Pennsylvania and the Lehigh Valley will continue to attract users and investors,” Walters predicts. “The only challenge the regional industrial market may face is availability of labor, which could become a greater issue with the continual decrease in unemployment rates.”

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