Industrial market report shows strong foundation remains despite oversupply concerns

A fourth quarter report on the industrial real estate market for the Interstate-78/81 corridor shows supply outpacing demand overall during 2019, according to the real estate firm CBRE.

However, for the Lehigh Valley and Berks County, the market had a solid year and supply and demand was largely in balance in 2018, said Vincent Ranalli, senior vice president of CBRE in Radnor.

In Lehigh Valley and Berks, the market saw 6.3 million square feet of new space delivered, with 5.6 million square feet absorbed.

The vacancy rate for the entire I-78 corridor, including Lehigh Valley, Central Pennsylvania and Northeastern Pennsylvania ticked up to 7.2 percent, Ranalli said.

“This was largely attributable to a large amount of speculative space delivered in Northeastern Pa., coupled with retailers like Sears who vacated three buildings in the Wilkes-Barre area,” Ranalli said. “When I look at it, I say Lehigh Valley and Berks County had a pretty good year. We need more of these buildings to be absorbed in Northeastern Pa. A lot of these developers are waiting to see whether these buildings are going to be absorbed before they decide to pull the trigger.”

According to the report, developers are reacting to a somewhat protracted demand environment and slowing the pace of new construction starts with nearly half as much supply starting construction this year compared to last.

Rents for class-A space in the Lehigh Valley rose 5 percent over last quarter and tenant activity, which includes building tours and leases signed, was up 17 percent over last quarter, he said.

Companies signed several large leases in Q4 and a few more will carry over into Q1, which should be very strong, Ranalli said.

“For Lehigh Valley and Berks County, tenant activity is strong,” Ranalli said.

This includes tenants in building sizes that range from 100,000 square feet to 1 million square feet.

“We are also seeing some restraint from developers,” Ranalli said.

As an example, for two quarters in a row, no one broke ground on a million-square-foot building, he said.

“Developers are being a little restrained,” Ranalli said. “There were a couple of deals that happened last year that were big and some happening now in the process of being signed.”

Every indicator points to a positive first quarter for the industrial market, he added.

Two areas showing strong interest from companies include the BridgePoint 78 industrial park under construction in Phillipsburg, New Jersey and two distribution properties under construction near I-78’s Exit 67 in Bethlehem.

Across all counties in the corridor, the report showed a total of 12.4 million square feet of industrial properties under construction in the fourth quarter, a decrease from Q4 2018, which had 16.8 million square feet.

The report showed average asking warehouse rents generally went unchanged during 2019, while contract rents showed the same trend. However, there were exceptions. The Lehigh Valley market showed modest rent appreciation for newer product with leases signing higher than the $6 per square foot mark in most instances.