Mega warehouse trend continues to grow along I-78/I-81 corridor

After years of steady growth, the Interstate 78/Interstate 81 corridor is still seeing strong demand from tenants looking for 1 million square feet or more, according to CBRE Research, an arm of real estate firm CBRE Group Inc. There have been three such move-ins this year, with two more tenants set to occupy warehouses soon and at least nine more companies looking for large spaces along the corridor.

The need for larger industrial buildings is being driven mainly by growing demands for e-commerce facilities. Third-party logistics companies have been grabbing a lot of the new space, along with building material suppliers, wholesalers and retailers.

With new warehouses filling up quickly, leasing rates has pushed up as other tenants eyeing the corridor await new projects. The average asking lease rates across the corridor at the end of the third quarter was $4.70 per square foot, up 18 cents since the beginning of the year.

The I-78/I-81 corridor overall is defined by CBRE as Central Pennsylvania, the Lehigh Valley and Northeast Pennsylvania.

If demand remains strong and vacancy rates remain low, rates could go even higher, CBRE said. The vacancy rate was 6.1 percent in the third quarter even as more than 5.6 million square feet of new product was added to the inventory.

Hoping to feed that next wave of tenants, industrial developers broke ground on 4.5 million square feet of new warehouses in the third quarter. There is about 10.3 million square feet of space under construction overall.

Of that total, nearly 5 million square feet is under construction in Central Pennsylvania, including 2 million in York County. Goodman Group is working on a new logistics center off Interstate 83 in Newberry Township in northern York County

The Lehigh Valley, by comparison, has about 3.3 million square feet under construction.

CBRE said the Lehigh Valley saw the most occupancy gains in the third quarter with 2.8 million square feet of net absorption, the largest quarterly tally in seven years.

FedEx Ground occupied its newly built 1.2 million-square-foot warehouse in the Lehigh Valley. Meanwhile, UPS signed a deal for more than 1 million square feet.

The Lehigh Valley also boasts the highest leasing rates along the corridor. The average asking rate was $5.22 per square foot in the third quarter compared with $4.65 per square foot in Central Pennsylvania.

However, the midstate has nearly double the amount of inventory over the Lehigh Valley with more than 239 million square feet of industrial space. Central Pennsylvania is the largest industrial market in the state and one of the top markets in the country.

Based on early fourth-quarter indications, CBRE said it expects similar results to close out the year. Researchers are tracking tenants demands of more than 30 million square feet of space along the I-78/I-81 corridor.