Unprecedented consumer spending is continuing to drive demand for commercial real estate in the Lehigh Valley according to the latest Northeast Industrial Brief from CBRE.
Consumers spent a record $565.8 billion in the U.S. in October 2021, putting added stress on an already overwhelmed supply chain system.
The report shows that port activity increased by 16.1% in 2021 and the lack of warehousing space for those imported goods has meant industrial rents continue to climb.
“A lot of tenants that want to be closer to the ports are priced out of the market,” said Vince Ranalli, executive vice president for CBRE. “Real estate costs are a lot lower by moving west.”
He said that is sending tenants into the Lehigh Valley, Berks and even Central Pennsylvania markets.
The demand has pushed rent up 20% over last year and most Class A industrial space is leasing for about $8 per square foot in the region.
“Still, that’s a bargain compared to some areas closer to the ports. We can be a third of the cost,” he said.
The Lehigh Valley currently has an industrial space vacancy rate of about 4%, which means those rents are likely to keep climbing to keep up with the demand.
The demand and low vacancy rate also means new construction continues at a rapid pace.
“We have about 9 million square feet of space under construction right now and 41% of that is pre-leased. The building is still going up and it’s already leased,” Ranalli said.
The Lehigh Valley does have another advantage in attracting these commercial tenants, Ranalli said, and that is scale.
With more open space the region can deliver larger warehousing and logistics facilities than the denser urban areas closer to the ports in Newark and Philadelphia.
He cited Bridgeport 78, the development underway at the former Ingersoll Rand property in Phillipsburg, New Jersey.
That development can support an industrial building up to 1.4 million square feet.
“That’s what differentiates us. We can still deliver these types of projects,” he said.
The report did note that the heavy demand for light industrial space goes throughout the Northeast U.S.
“We have never before seen dynamics like these play out in the market — insatiable consumer demand, booming port activity and a dearth of available industrial space throughout the Northeast,” said Thomas Monahan, a vice chairman at CBRE. “While 58.5 million square feet of industrial space is under construction in the region, most of which is already pre-leased, only 6.5 million square feet. is in port-adjacent submarkets.
Monahan said it’s clear by the numbers that even the new construction will not be enough.
The company’s research shows that demand will continue unabated throughout 2022, far outstripping supply.