Newmark Knight Frank (NKF) released its third-quarter 2019 industrial market reports for Greater Philadelphia and the I-81/78 Corridor. The I-81/78 Corridor realized positive net absorption to the tune of approximately 751,000 square feet, regaining momentum following last quarter’s net occupancy losses, the first in a decade. Development in the Corridor remained at record levels, with 18.1 million square feet under construction. In the Greater Philadelphia industrial market, overall development levels hit an all-time high of 7.9 million square feet during the past three months.
In the third quarter of 2019, vacancy in the I-81/78 Corridor rose 50 basis points to 7.6 percent, the highest level since 2014. This increase came as a result of speculative supply additions outpacing demand, although millions of square feet in pending occupancies planned by year-end are likely to trim the vacancy rate in the fourth quarter. The largest occupancy in the third quarter occurred at 4532 United Drive in the Central Pennsylvania submarket where Lowes moved into the 1.2-million-square-foot warehouse that completed construction earlier this year. Development levels in the Corridor remained at record highs, with 18.1 million square feet across 30 projects under construction, posting an overall preleasing rate of 38.7 percent. Among the projects that broke ground this quarter was a 352,000-square-foot warehouse at 693 North Hills Road, at the site of a former industrial building that the developer, Endurance Real Estate Group, purchased and razed. This is the latest example in a growing trend of redevelopment or raze/new-build in the Corridor market. NKF Associate Director Nick Pickard noted, “First-class development sites are dwindling and as users seek modern logistics space, obsolete industrial buildings in prime locations have become greater targets for redevelopment.” Other examples of this trend include the renovation and expansion of the existing structure at 485 St. Johns Church Road in Central Pennsylvania and the redevelopment of Kraft Food’s demolished plant into Park 100 Logistics Center in the Lehigh Valley.
Greater Philadelphia’s industrial market has experienced accelerated growth in development activity over the past 12 months. In the third quarter of 2019, new speculative and build-to-suit projects drove development levels to a new high of nearly 8.0 million square feet. Although the majority of the market’s new development is in Berks County, owing to its adjacency to the I-81/78 Corridor market, each of the eleven counties comprising the Greater Philadelphia industrial market have construction underway. Speculative groundbreakings this quarter included two warehouses measuring 167,440 and 160,160 square feet at Berks 222 in Reading, a 100,167-square-foot warehouse at 2021 Woodhaven Road in Philadelphia, and a 63,000-square-foot industrial facility at 900 Columbia Avenue in Linwood (which has already been leased by two tenants). Speaking about the new development landscape, NKF Senior Managing Director Tim Brogan said, “it’s encouraging to see developers kicking off industrial projects under 200,000 square feet because it’s difficult for smaller-footprint tenants to find modern industrial space in this tight market.”
Vacancy in the Greater Philadelphia industrial market remained unchanged from the previous quarter at 5.2 percent, as supply additions and net absorption were in equilibrium. A total of 1.2 million square feet in new occupancy accumulated during the past three months propelled overall year-to-date net absorption to 4.1 million square feet. In forecasting annual totals, it is likely that 2019 will be the first year in this development cycle in which the Greater Philadelphia industrial market tallies greater net occupancy growth than the neighboring I-81/78 Corridor market.
About Newmark Knight Frank
Newmark Knight Frank, operated by Newmark Group, Inc. (NASDAQ: NMRK), is one of the world's leading and most trusted commercial real estate advisory firms, offering a complete suite of services and products for both owners and occupiers. Together with London-based partner Knight Frank and independently-owned offices, NKF's 16,000 professionals operate from approximately 430 offices on six continents. NKF’s investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting, government-sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. For further information, visit www.ngkf.com.
3Q19 Greater Philadelphia Industrial Market
3Q19 I81 78 Industrial Market
