Lehigh Valley ranks among industrial growth leaders

E-commerce was on the rise before the pandemic first swept across the country two years ago.

But the initial outbreak, and resulting stay-at-home orders, began a spike in online shopping that shows little sign of slowing.

That, in turn, has fueled an increased demand for, and construction of, distribution space – particularly in the Lehigh Valley.

In fact, according to a study of the top 11 regions in the country, there has been a 25% increase in growth since the global financial crises of 2007-2009.

Transwestern Development Company, which does business in the Lehigh Valley and throughout the country, did a study of the 11 fastest-growing areas of the country and the Lehigh Valley, which for their report includes most of Southcentral Pennsylvania and the Lehigh Valley, showed the area was ranked first in four categories the study looked at.

The region led in investment growth, investment growth future, net absorption and rent growth, the company said.

Matt Dolly, author of the Elite 11 report, said the company wanted to track the top 11 growth areas in the country that continue to “lure global investors of industrial real estate.”

“The Lehigh Valley has grown so much, we decided to include the region in our report,” he said.

New Jersey has been so built up that demand has outpaced what it has to offer, so Lehigh Valley has benefited from that, he said.

“You would think the area would [only] support smaller spaces, but in the last year, we’ve seen large warehouses going up,” said Dolly.

In fact, in the last year, Lehigh Valley-Central PA region reported a 4.8% annual growth in occupancy gains, which equates to more than 30 million square feet for a total of 642 million square feet.

“The taxes are lower, there is still more land, and the population is growing,” he said. “According to the 2020 census, Lehigh Valley showed an increase in population where the rest of the state hasn’t.”

That, he said, means a larger workforce pool.

Brian Banaszynski, Northeast regional partner for Transwestern Development Logistics Group, who oversees the company’s business in the region, said e-commerce has grown 16 percent overall in the region since the pandemic began. While e-commerce was growing one to two points a year pre-pandemic, COVID-19 created a jump in that growth by five points.

“Online grocery sales have grown significantly,” he pointed out. “In 2019 there were $2 billion in online sales. When you look at 2021, you see a jump to $9 billion.,” he said. “That is huge.”

Banaszynski noted that the increase demand for product can be seen in the increase in activity at the New Jersey and New York ports.

In 2019, 600,000 cargo containers moved through the ports. In 2021, that number jumped to 800,000.

Those products must go through the logistics facilities to get to the end user.

“That’s why Lehigh Valley is so hot,” he said, pointing out the increased use of cold storage facilities.

And, Dolly said, warehouses are now beautiful properties compared to the dingy sites they used to be, so they are drawing populations in.

“The area has been hot for a while,” said Tom Palisin, executive director of the Manufacturer’s Association, York. “Our highway infrastructure offers access to most of the country, most within a one-to-two-day drive. And space is more affordable. We are not Washinton D.C., Philadelphia or Boston so it’s a smarter investment with similar access to the same markets.”

George Lewis, vice president of marketing, communications and research for Lehigh Valley Economic Development Corporation, said, “The Lehigh Valley continues to see consistent activity and interest in the manufacturing and logistics sectors. We ended 2021 with low industrial vacancy rates and average asking rents that increased by double digits over the previous year.”

“More than 5 million square feet of industrial space was under construction by the end of 2021, and vacancy rates in industrial space averaged 4.1 percent, down from an already low 4.9 percent the year before,” he said.

Banaszynski explained, “the vacancy rate dropped 42 percent even with the growth of new construction.”

In 2018, he said, the vacancy rate with 73 million square feet of space was 5.5-6 percent. In 2021, with 91 million square feet of industrial space, the vacancy rate is 3 percent.

In addition, in mid-2021, rent growth increased 13 percent, he said.

“That was the highest among the Elite 11.”

In the region, Transwestern has 10 million square feet of warehouse space, either completed, under construction, under contract or in the planning stages. Most of the activity is concentrated around Route 100 and Route 222.

“We have a 2-million-square-foot site in the Lehigh Valley right now,” he said. “I can’t disclose where because it is still under contract.”

And while the demand for larger warehouse space remains, it is slowing in the Lehigh Valley as land becomes harder to find. Banaszynski said developers are moving east into Phillipsburg as well as west into Hamburg and other sites.

“The boundaries have grown to accommodate more growth,” he said.

Palisin agreed. “Space is running out, especially along the I-81, I-78 corridors.”

Manufacturers, he said, are doing well with the high demand for products. They are still facing supply chain issues, so many have already filled orders for this year.

Even with the population growth in the region, the size of the workforce is still an issue.

“Every industry is doing well, so employees have choices,” said Palisin. “We didn’t have this before. Hiring usually runs in cycles. But when everyone is hiring at the same time, it thins the [worker] pool.”

Lewis said LVEDC is focused on marketing the region’s economic assets for such target sectors as life sciences, food and beverage processing, professional business services, and advanced manufacturing.

“We’ve seen a high demand for smaller-footprint industrial buildings in the Lehigh Valley, particularly in the 40,000 to 80,000 square-foot range,” he said. “There is a shortage of buildings in that size range in the Lehigh Valley, and LVEDC continues to communicate the need for these buildings to regional developers.”