Aging Industrial properties help to drive new construction demand

The region’s industrial real estate market is starting to show its age, and that means developers may be looking to replace some of the older structures along the I-78/I-81 corridor with newer, more modern and efficient ones. 

According to a report by CBRE, the average age of an industrial building in Lehigh and Northampton counties is 32 years old. The average age in Central Pennsylvania is slightly older at an average of 36 years.  

That’s still better than some regional markets according to Vince Ranalli, executive vice president at CBRE. 

He noted that the average industrial building in the Philadelphia metro region was 49 years old and the average industrial building in the New York/Northern New Jersey market is 60 years old. 

The national average is 43 years and 28% of the country’s industrial buildings are over 50 and at risk of becoming functionally obsolete. 

While better off than some markets, Ranalli aid the aging stock is contributing to the new industrial construction in the region. 

“The old buildings just aren’t as efficient. They have lower ceilings, less dock doors, less parking and they’re just not as desirable,” Ranalli said. 

He gave the Kraft Heinz building in the Lehigh Valley as an example. That facility was built in the early 1970s. 

“When a developer looked at a building like this they’d say, ‘this would limit the number of tenants that would be able to use this,’” he said. 

So, instead of trying to market the property, it was knocked down and two new state-of-the-art buildings were constructed in its place. 

You are going to see more of that, Ranalli said. Especially with the diminishing availability of land, reusing, renovating or rebuilding old sites is becoming increasingly common. 

And while, yes, construction costs remain high and interest rates are rising, the rent is also increasing on the more modern buildings, which make up for the construction investment, he said. 

He said that tenants, especially in the ecommerce and logistics industries, are asking for properties that have such things as higher ceiling heights and are more energy efficient to help them operate better. 

He said developers are delivering. There are currently 36.7 million square feet of new industrial buildings under development along the I-78/I-81 corridor. Comparatively, there is currently a record 627 million square feet of new industrial construction going on nationally. 

And the demand is there. Ranalli said newer buildings perform better on the real estate market.  Of the distribution facilities built in the past 10 years, there is a minuscule 2% vacancy rate.