Monthly Download | Demand Update | June 2017

Lee & Associates of Eastern Pennsylvania (LAEP), seeks to keep its finger on the pulse of our market by tracking our regional industrial requirements via our Industrial Demand report. As prospective tenants survey the market for their logistical solutions, LAEP diligently evaluates these requirements over the course of each quarter.

As we near the end of Q2 2017, we are tracking roughly 94 active requirements for industrial space across the Philadelphia regional market. These requirements represent a total demand of approximately 25.5 million square feet of needed industrial space. Of those requirements with a known deadline, nearly 60% require space before the end of 2017. Another 30% are seeking space before the end of Q2 2018. When aggregated, that equates to approximately 40% of all 94 current active requirements are demanding nearly half of the total 25 million square feet within a year from today.

38 requirements are seeking 12.4 million square feet by next year. The average size of these requirements is 330,000 square feet. While these requirements are somewhat spread across the market, Central Pennsylvania is the market most in demand. Nearly 83% of these requirements (10 million square feet total) are looking in Central Pennsylvania with an average size of approximately 380,000 square feet. The Lehigh Valley is the second largest driver of demand. Approximately 37% of these requirements (5.5 million square feet total) are looking in the Lehigh Valley. Ironically similar to CPA, with the same average size of 380,000 square feet. This similarity in average size is likely because nearly three fifths of the requirements (3.1 million square feet) searching in the Lehigh Valley are also looking in Central PA. The average size of these shared requirements is 520,000 square feet.

When comparing the lease signings and sale transactions that have occurred in Q2 with LAEP’s Industrial Demand report; the average time it took a requirement hitting the market to reaching a lease or sale transaction was approximately six months. Respecting this relatively short time frame, we can qualify a total of four existing, Class A vacancies from LAEP’s Core Data Set that would be competing for the aforementioned 3+ million square feet of requirements searching in both Central PA and the Lehigh Valley. Lee & Associates of Eastern Pennsylvania’s Core Data Set (CDS) focuses on industrial buildings that are 100,000 SF or larger, with a design use currently or readily adaptable to warehouse/distribution. LAEP’s CDS seeks to identify the supply of properties within our market that meet current requirements. If we included construction projects that were already under way at the end of Q1 2017, the total number of qualified Class A vacancies would be seven, totaling nearly 5.5 million square feet in total direct vacancy. Five of these seven properties are in Central PA, leaving only two availabilities in the Lehigh Valley, both of which are one million square foot projects currently under construction.

With such a limited selection, it is not surprising to see an uptick in speculative construction starts in Q2 in both Central PA and the Lehigh Valley. Per LAEP’s Core Data Set there were six new speculative construction starts in Q2 Central PA and Lehigh Valley totaling 5 million square feet, with an average project size of 820,000 square feet. If not preleased, these speculative construction starts will add another 3.2 million square feet of Class A availability to Central PA, and an additional 1.8 million square feet of Class A availability to the Lehigh Valley by Q2 2018.

Not to be overlooked, 16% of the requirements seeking space before Q2 2018 are including the I-81 Corridor or Southern New Jersey submarkets in their search. While the total space in demand is significantly lower than Central PA or the Lehigh Valley, the average size of these requirements are still comparable at 380,000 to 400,000 square feet. Also similar to Central PA and the Lehigh Valley, the I-81 Corridor and Southern New Jersey also saw additional speculative construction starts in Q2. With the addition of these construction starts, the I-81 Corridor is on track to deliver an additional 1.5 million square feet of speculative space by the end of 2017. Southern New Jersey will add another one million square feet. These additional speculative starts put both markets in position to compete for the expected demand through Q2 2018.

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Any questions regarding the Eastern Pennsylvania market please contact us at 717.695.3840 or 610.400.0499.