Rent prices for logistics facilities in the Northeast U.S. Corridor are skyrocketing, but that may be good news for developers and property managers in the Lehigh Valley and Central Pennsylvania.
A report by CBRE shows that rents for light industrial properties rose nearly 30% during the first half of 2021 compared to the first half of 2019, before the COVID-19 pandemic drove the demand for such properties.
According to Vince Ranalli, executive vice president for CBRE, rents in the Lehigh Valley and Central Pennsylvania are averaging around $7 per square foot for Class A industrial space. But, that’s still much lower than other regions along the corridor, making sites in the Lehigh Valley and Central Pennsylvania more attractive.
The Pennsylvania I-78/I-81 corridor, which encompasses the Lehigh Valley, Central Pennsylvania and Northeastern Pennsylvania has had an average Class A industrial rent increase of 11.8%, which while significant, is still drastically lower than Central New Jersey, which has seen rents increase by 49.32%, the Philadelphia area market, which has risen by 47.31% and Northern New Jersey, which has seen a 31.01% increase in rents prices.
“The Lehigh Valley is still a bargain compared to other areas,” Ranalli said. “We see tenants all of the time that are priced out of the other markets and want to be in the Lehigh Valley.”
Meanwhile the demand for such properties is continuing at a staggering rate.
Vacancies within the Northeast Corridor dropped more than 70 basis points during the first six months of 2021, settling at a record low of 3.3%
“That’s historic,” Ranalli said. “We’ve never seen that before.”
But demand is only part of the reason that rents are rising so drastically.
Costs for developers building the properties are also on the rise. The cost of materials has skyrocketed. Steel, for example, is costing more than three times what it did last year.
Labor costs have also gone up dramatically, all of which go towards the cost of building these industrial facilities and contribute to higher rents.
But the demand for Class A, modern industrial space isn’t slowing down and developers are leasing out properties faster than they can build them.
“We’re seeing a lot of pre-leasing, which is something we’ve never seen before,” Ranalli said. “These buildings are being leased while the walls are still going up.”
The biggest challenge in the Lehigh Valley and Central Pennsylvania right now is a lack of property to develop.
“All of the easy sites are gone. I’ve said it before, developers are having to get creative to find new sites to develop,” he said.
And it’s a trend he said he doesn’t see slowing down anytime soon, so those looking to lease light industrial properties should consider the higher prices as the new standard of what to expect.