Industrial tenants should brace for rent increases

Industrial tenants in the region can expect sticker shock when their leases come up for renewal according to a new report by CBRE. 

Rent has gone up dramatically in the past five years, — the length of the average lease — and companies need to be prepared to pay more to keep their facilities. 

Bill Wolf, executive vice president of the firm’s Allentown office, said while rents are up across the country, regions near ports are seeing the largest increase, which has Northampton County in the top five of regions in the Greater Philadelphia region and I-78/I-80 corridor for rent increases. 

Industrial rents have gone up 26.7% in Northampton County, due mostly to its proximity to ports in New York and Newark and also because of competition for scarce available space, which has enabled owners and developers to push prices higher.  

Rents have gone from $4.87 per square foot in 2016 to $6.81 in 2021 in the county. 

Lehigh County was slightly behind with a 25.4% percent increase over the past five years. 

Wolf said it’s something these companies need to be prepared for. 

“You have to prepare and get advice from your consultants,” he said. 

The report warned that many tenants may think “can we negotiate the rate? Can we relocate and find a better rate?” 

 While exploring their options, tenants may find that their relocation options are limited or non-existent. Many go back to their landlord and find that they cannot negotiate down, but in fact the previous renewal offer expired, and the new rate is now even higher. 

If there is any good news is that while rents continue to climb, the Lehigh Valley is still a relative bargain compared to some regions. 

In the region included in this survey, Delaware County had a 67.6% increase in industrial rent, with number jumping from $5.46 per square foot in 2016 to $10.11 per square foot in 2021. 

In other regions close to major ports the increases have also been dramatic. In Southern California rents have gone up more than 86% in five years, with rents near the Los Angeles ports up 57% and 40% in the New York/Newark area. 

While it may be a startling increase, Wolf said these companies should be cognizant that an increase would be coming.  

“The rental rates are the most visible cost increase, but these companies are already seeing increases throughout their supply chain,” he said. 

He said shipping, for example is up 150% over five years and domestic freight is up 40%. He said he would also expect fuel surcharges to be implemented or increased because of the dramatic spike in gas prices recently.