Commercial real estate starting 2022 with more records along I-78/I-81 corridor

Coming off a record-breaking year in 2021, the I-78/I-81 corridor is continuing to experience record low vacancy, record high absorption and record high rents in the commercial real estate market, as well as a construction industry that’s struggling to keep up with demand. 

According to the latest report from CBRE, the vacancy rate in the region was a low 3.8%, while net absorption was 4.9 million square feet.  

Average rent has reached $5.94 per square for industrial space and there is currently 33.5 million in new construction in the pipeline. 

The average rent along the corridor is up 3% over last quarter and is expected to continue to climb. 

In the coveted Lehigh Valley, average asking rents rose to $7.07 per sq. ft. In Central Pennesylvania and Northeast Pennsylvania, average asking rents landed at $5.32 and $5.30 per square foot, respectively. In the particularly tight Class A warehouse subset, overall average asking rents increased to $6.48 per square foot, indicative of the strong competition for modern logistics facilities. 

Vincent Ranalli, executive vice president with CBRE said not only is the vacancy rate at a record low, but 40% of all of the new construction in the pipeline is already pre-leased. 

He said that has developers very bullish and many are moving forward on new projects much faster than they would have in the past. 

He pointed to one project in East Allentown Township, just north of the Lehigh Valley International Airport. 

The development calls for five buildings and the first two buildings, which are under construction, have already been leased.  

Because of the expected continued demand, the developer is looking to break ground on the next Three buildings this spring. 

“Looking back at the first quarter of 2021, we actually have more demand than we had at that time. We have more tenants looking for space and by every metric we’re busier this year than a year ago,” Ranalli said. “Last year was an historic year in the Lehigh Valley so we seem to be on course for another banner year. 

But it’s actually Central Pennsylvania that is currently leading the pack in new construction, a fact that Ranalli attributes mostly to the availability of space compared to the Lehigh Valley. 

“Lehigh Valley is just a little bit harder to develop in because there’s less sites,” he said. “What you have in Central Pennsylvania is that there’s less barriers to entry.” 

He said there are currently 12.6 million square feet of industrial space under construction currently in Central Pennsylvania as compared to 11 million square feet in the Lehigh Valley. 

“Landlords are still very confident and are willing to go forward on speculative projects,” he said. 

He noted there is also strong diversity in the tenants of these buildings, with third-party logistics, ecommerce, food & beverage and consumer goods leading the tenant pool along the corridor. 

And while construction is up, Ranalli said it still isn’t quite keeping up with demand and CBRE expects the tight market to continue through at least the rest of the year.