Record CRE activity continues in region, driven by supply chain concerns

Stacy Wescoe//October 13, 2021

Record CRE activity continues in region, driven by supply chain concerns

Stacy Wescoe//October 13, 2021



Recent reports of such supply chain problems as the 80,000 cargo shipping containers piled up at the Port of Savannah and ships waiting up to nine days to offload their cargo, illustrate why the commercial real estate market is booming in Eastern Pennsylvania along the I-78/I-81 corridor. 

Retailers are having trouble getting their goods delivered in a timely manner and that can have a strong negative impact on business if they fail to have the inventory they need for high-demand seasons such as Back-to-School or the Christmas holidays. 

“If retailers can’t hit that, there’s going to be major implications,” said Sean Bleiler, senior vice president for CBRE. “It’s not just about a kid not getting the backpack they want. Their stock is going to get hit if they can’t get theses goods off the ship and into their stores.” 

That’s driving these companies to want to store their goods closer to home, and it’s having a continued major impact on the commercial real estate market in the region. 

Bleiler said the I-78/I-81 corridor saw record activity in the third quarter, surpassing the record numbers of the first and second quarters of the year. Most of that – especially in the Lehigh Valley – was driven by third-party logistics providers and ecommerce companies looking to house their products and distribution in the dense population region of the Northeast. 

According to the most recent CBRE report on the corridor, there was a mere 4.6% vacancy rate with 25 million square feet of new construction in the pipeline. 

“A lot of that is already pre-leased so net absorption is actually outpacing construction,” he said. 

In the Lehigh Valley alone there is 9 million square feet of industrial buildings under construction with a 4.6% vacancy rate. 

The Central Pennsylvania region is slightly tighter. It has 7.7 million square feet of industrial space under construction and a 4.4% vacancy rate. 

The demand is driving rent for commercial properties to record levels across the board. 

“The Lehigh Valley is the most expensive on a square foot basis because of its proximity to the New Jersey and New York markets,” he said. 

However, he said as prime properties become rarer and more expensive, the market is being driven westward into Central Pennsylvania and beyond where there is the potential for more developable land. 

“Five years ago, building 30 or 50 miles west may not have made a lot of sense, but now that’s making sense,” he said. 

The report shows current commercial rents are averaging $5.60 per square foot., a year-over-year increase of nearly 20%. It added that the lack of availability, particularly for class A spaces, has led to tenants entering competitive bidding wars.  

As a result, Class A base rents written into leases averaged $6.13 per square foot during the third quarter, a 2% premium over average Class A asking rates. 

With supply chain problems expected to continue, and logistics changes brought about by the COVID-19 pandemic, Bleiler said CBRE sees no end in sight to increasing demand for and cost of commercial real estate along the corridor. 

“We’ll see rates continue to rise quarter over quarter and we’ll continue to see record rates and construction isn’t going to be able to keep up,” he said. “We think it will continue for the foreseeable future at this point.”