Monthly Download | Supply Update | April 2017
2016 was a memorable year for the Philadelphia industrial market. Within the Lee & Associates of Eastern Pennsylvania’s Core Data Set (CDS) , positive net absorption totaled over 17 million square feet across the market, which represented a 47% increase from 2015. Worthy of note in 2016, the Central Pennsylvania (PA) submarket, did not experience the same robust absorption totals quarter over quarter as did the rest of the overall Philadelphia market. However it was the Lehigh Valley submarket that drove leasing and construction activity throughout 2016, establishing itself as an emerging national industrial hub. Total positive absorption in the Lehigh Valley topped 7.6 million square feet, a 128% increase from 2015 totals. Separately, 2016 was also a landmark year for the Southern New Jersey submarket, as this market saw over 4.1 million square feet of total positive absorption, a 247% increase from 2015. With such robust construction and unprecedented leasing activity in 2016, we turn our attention to 2017 to see if these positive trends are destined to continue.
Q1 2017 did not disappoint. Total absorption was a positive 4.9 million square feet across the market, representing a 273% increase over Q1 2016. Vacancy fell 63 bps from Q4 2016 to end at 5.74% for the quarter. Most notable was the positive absorption that occurred in Central PA, which eclipsed 1.2 million square feet in Q1. That is nearly 60% of the total absorption for the submarket in all of 2016. 20% of the Central PA inventory has footprints of 500,000 square feet or greater. Buildings 500,000 square feet or larger in Harrisburg West (Cumberland and Franklin Counties) and Harrisburg East (Dauphin and Lebanon Counties) represented 60% of total vacancy in Central PA across all classes at the end of Q4 2016. In other words, if/when leasing activity was to occur in Central PA, it was more than likely to occur in large footprint transactions, and in Harrisburg West or East. In Q1, one such deal captured approximately 50% of total absorption for the quarter: SuperValu’s purchase of 3700-3900 Industrial Road in Harrisburg. Supervalu spent the better portion of 2016 searching the Central PA submarket with their requirement before deciding to purchase their former 740,000 square foot facility, with cold storage, for $37 million in late March. This trend of large scale lease transactions should continue into Q2 2017 as 97% of vacant Class A product resides in the areas Harrisburg West and East. At the end of Q1, these areas represented 75% of the total vacancy for all of Central PA.
Southern New Jersey also continued to keep pace with its record-setting 2016, with 1.9 million square feet in positive absorption in Q1, which is 87% higher than 2016’s average quarterly absorption. 62% of the total absorption was captured in three lease transactions; Exeter delivering 213,000 square feet in Burlington, preleased to Owens and Minor, B&H Photo taking 577,000 square feet at First Industrial’s recently delivered project in Florence, and XPO landing in 393,000 square feet in Dermody’s LogistiCenter at Logan. The I-81 Corridor also contributed nearly 1 million square feet in positive absorption, which nearly matches the total absorption for the submarket in all of 2016. The bulk of the absorption for the quarter occurred in three deals at two properties: Northpoint Development leased the remaining +/- 650,000 square feet in two deals at 25 Keystone Boulevard. These deals brings the 1.25 million square foot building to full occupancy within only a year of acquiring and speculatively expanding the property an additional 800,000 square feet. Mericle also contributed an additional 232,000 square feet in positive absorption by preleasing and delivering 500 Keystone Avenue in CenterPoint East to Apollo Flow Controls.
As of the end of Q1, 12.8 million square feet was under construction, 55% of which was still available for lease. The majority of the immediate availability resides in the Lehigh Valley, with 3.5 million square feet currently on schedule to deliver in Q2 2017. This should help refuel a somewhat deal fatigued Lehigh Valley submarket, where availability remained scarce coming off a record breaking 2016.
i The Lee & Associates of Eastern Pennsylvania Core Data Set calculates industrial statistics using a base of existing industrial buildings located across the Philadelphia market. All industrial buildings, 100,000 square feet and larger, with a current design use or which are readily adaptable for warehouse, distribution, or light manufacturing use are included in our Core Data Set.
ii-iv Q1 2017 absorption and vacancy for Total Market and Central PA submarket corrected and restated from original release sent via email on 4/30/2017 due to clarification on timing of pending lease and sale transactions.