Newmark released its first-quarter 2019 industrial market reports for Greater Philadelphia and the I-81/I-78 Corridor. The first quarter proved a great start to what is likely to be another year of positive momentum for the two major regional markets. The combined markets closed the period with 4.1 million square feet of positive absorption, driven by tenant demand for newly delivered, state-of-the-art warehouse/distribution space.
Development activity across the region remains elevated. In the Greater Philadelphia industrial market, construction was completed on 2.3 million square feet of new space, the largest quarterly delivery volume since mid-2017. Accumulated tenant demand over the same period has largely kept pace with new deliveries, and first-quarter vacancy at 5.3 percent was just 50 basis points above the all-time record low of 4.7 percent charted in the first quarter of 2018. Noting the persistent tightness in the market, Newmark Senior Managing Director Neil Shupak said, “Good space is selling and leasing for record prices and in a short period of time. I do not recall a seller’s/landlord’s market this strong in my 44-year career.” Average asking rents rose slightly quarter-over-quarter to $5.40 per square foot and are expected to continue to grow in 2019.
Southern New Jersey experienced approximately 665,000 square feet of net absorption; Trane’s occupancy of the newly-delivered 310,690-square-foot building at 600 Richards Run accounted for the largest move-in of the first quarter. While no new construction kicked off in the first 90 days of 2019, the pipeline is set to grow with planned groundbreakings throughout the year to meet active tenant demand.
New Castle County realized a little less than 20,000 square feet of positive absorption in first-quarter 2019, indicative of a market where there is little elbow room (vacancy in New Castle County was 2.6 percent in the first quarter).
Industrial demand in the Greater Philadelphia region was most pronounced in the Southeastern Pennsylvania market and particularly in Berks County, which borders the I-81/I-78 Corridor market. Among the largest move-ins there were Niagara Bottling and Fleetwood Fixtures, which occupied the newly-delivered 336,000-square-foot 111 Logistics Drive in Hamburg Logistics Park. Altogether, nearly 1.0 million square feet of new occupancy was tallied in Southeastern Pennsylvania. Although the warehouse sector drove the majority, Southeastern Pennsylvania’s R&D/flex market experienced a quarter of high-profile activity, which is likely to drive growth in this sector throughout the year. Discovery Labs, the former GSK campus in King of Prussia, set lab space rates at $31.00 per square foot, the highest rate for this product type in the suburban counties. In addition, new leases were recently signed at the renovated Spring House Innovation Park, where Thomas Jefferson University will be opening a 25,000-square-foot R&D facility later this year.
In the I-81/I-78 Corridor market, vacancy dropped 30 basis points to 6.2 percent from the previous quarter and demand outpaced supply additions. Persistently high demand for new industrial space drove the construction pipeline to a historic level in 1Q19. Three new groundbreakings in the past 90 days expanded the total amount of development to 14.9 million square feet. “The overall volume of demand I’m seeing in the market still justifies this amount of development,” said Tim Brogan, Newmark senior managing director. 2.4 million square feet was absorbed in the first quarter, approximately 75 percent of which occurred in buildings constructed in the past two years. Brogan went on to note that with the record amount of speculative space set to deliver in 2019, tenants will have a greater variety of available options: “The average time between a new building delivering and leasing up is likely to increase, but demand is here to stay.”
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