Newmark released its first quarter 2020 industrial market reports for Greater Philadelphia and the I-81/78 Corridor. First quarter statistics are reflective of activity prior to the economic disruption stemming from the COVID-19 pandemic and reinforce that both industrial markets were on strong footing going into the crisis. Current market indicators suggest that repercussions related to COVID-19 are likely to be less severe for the industrial sector than for other property types, yet this market pause will likely affect leasing volume throughout the balance of the year, causing an uptick in vacancy and potentially a slight softening in rents.
Activity in the I-81/78 Corridor industrial market was robust in the first quarter, with 3.3 million square feet of net absorption tallied, numerous significant new leases signed and average asking rents growing 1.3 percent quarter-over-quarter. Multiple million-square-foot or larger occupancies occurred throughout the market. True Value and NFI occupied 1.0-million-square-foot build-to-suits in Northeastern Pennsylvania, Smuckers moved into a 1.1-million-square-foot warehouse in Central Pennsylvania and in the Lehigh Valley, Qurate Retail Group took occupancy of its newly expanded 1.7-million-square-foot fulfillment facility.
Despite millions of square feet in new occupancy, vacancy ticked up to 10.1 percent, due to 6.5 million square feet of mostly vacant projects completing before Pennsylvania restricted construction to prevent the spread of the virus. The Corridor’s development pipeline measured 12.9 million square feet in the first quarter, and while a few industrial projects have received waivers from state government to continue construction, most active projects have paused. Proposed sites going through municipal approval will be delayed from groundbreaking. According to Associate Director Nick Pickard, this pause in development may balance out supply and demand in the short- to mid-term. “Restrictions on current and proposed construction will allow demand to re-align with the current inventory of available recently-delivered and under-construction warehouses in the market.”
In Greater Philadelphia’s tri-state industrial market, quarterly net absorption measured 832,365 square feet market-wide prior to the economic disruption caused by COVID-19. Southeastern Pennsylvania’s market registered approximately 134,000 square feet of negative absorption in the first quarter, due to a number of large tenant retractions and a lull in between significant move-ins scheduled for later in the year. New Castle County, Delaware and the Southern New Jersey markets both registered healthy positive net absorption.
Looking forward, although it is nearly certain that there will be a short-term decrease in leasing activity and shedding of space by some industrial-occupiers, such as those tied to brick-and-mortar retail, there are many bright spots for the Greater Philadelphia industrial market, including warehouse demand driven by ecommerce. At the end of March, Amazon announced it was in advanced negotiations to lease yet another suburban Philadelphia warehouse in an effort to further build out their last-mile supply chain, and anecdotal evidence points to multiple leases in the works for ecommerce providers trying to meet heightened demand from consumers sheltering in place. There is likely to be pent-up demand in this sector even when the economy re-opens as new consumers drawn to ecommerce maintain online buying habits. Long-term growth opportunities may also present in the form of companies bolstering inventory to bridge interruptions in the supply chain, requiring additional warehouse space and the potential for some manufacturing repatriation to the region.
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