WILKES BARRE, PA-The Central Pennsylvania industrial submarket witnessed a startling increase in leasing velocity as Office Depot Inc., Amazon.com and GlaxoSmithKline PLC all signed significant leases in class A buildings last quarter. With the availability of buildings over 600,000 square feet becoming scarce, the Central and Northeast Pennsylvania submarkets continue to compete for large tenants. Diapers.com surveyed the market and opted to move its operations to Gouldsboro, PA.

It will consolidate distribution activities into 411,000 square feet with plans to expand to 811,000 square feet. In order to decrease costs, it’s no surprise that tenants are still attracted to renewal options, as evidenced by Harte-Hanks, Inc., who renewed for 125,000 square feet in Wilkes-Barre, PA.

The Lehigh Valley industrial submarket ended the year with over 1.23 million square feet of positive total net absorption, with the majority of tenants taking occupancy in the first half of 2009. Similar to the Northeast Pennsylvania submarkets, tenants continue to renew at existing locations, creating only a short list of tenants that will actually relocate.

According to CB Richard Ellis research, the Southern New Jersey industrial market also experienced an uptick in leasing activity during the fourth quarter. The majority of new deals signed were tenants that moved from out of state or from Northern New Jersey submarkets. Additionally, ground was broken on the $247 million Paulsboro Marine Terminal Project, which will create 3,000 jobs.

In the Philadelphia suburbs, landlords continue to entice tenants with leasing incentives such as below market rental rates, gross as opposed to triple net rental rates and free rent. Archway Marketing Services, Inc., which renewed its lease for 352,500 square feet, is one example of a tenant who is capitalizing on these favorable market conditions.

The Greater Philadelphia industrial market experienced 1.34 million square feet of negative total net absorption in the fourth quarter of 2009. The Lehigh Valley, Bucks County and Montgomery County submarkets witnessed the bulk of this negative absorption. Conversely, the Northeast Pennsylvania submarket exhibited almost one million square feet of positive absorption, with The Home Depot and Graham Packaging Co. accounting for more than half of this positive absorption. According to CBRE, the total vacancy rate increased 68 basis points to 14.4%. But while the total vacancy rate rose for the sixteenth straight quarter, this is the smallest increase since the second quarter of 2008.

With no new construction starts in the fourth quarter, the 1.23-million square feet of product under construction is the lowest amount since the Q1 2004. The completion of ESC LLC’s 705,000-square-foot building in York, PA was one of four properties to finish during the quarter. Of course, as vacancies continue to rise and the cost to finance development projects remains high, new speculative development is expected to remain at these low levels until the market begins to recover.

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