Wayne, PA (August 6, 2018) — Newmark Knight Frank (NKF) released its second quarter 2018 industrial market reports for Greater Philadelphia and the I-81/78 Corridor. The combined markets closed the period with 1.3 million square feet of occupancy gains. Despite the positive absorption, the combined vacancy rate rose 50 basis points to 6.4 percent as six properties were delivered. Of the six, five warehouse properties delivered this quarter along the I-81/78 Corridor totaling 3.7 million square feet. Three of the buildings delivered vacant, for a total of 2.4 million square feet. The sixth building, a 1.1 million-square-foot warehouse located in the Southeastern market at 270 Midway Road in Berks County, also delivered vacant.

The Southern New Jersey market recorded 278,921 square feet in positive absorption, rebounding from rare negative absorption in Q1 2018. At midyear, the market posted 106,007 square feet in occupancy gains. Quarter-over-quarter, overall vacancy fell 20 basis points to 3.8 percent, a near record low for the market. The Burlington County submarket led the way with 174,684 square feet in positive quarterly absorption, followed by Camden County with 81,996 square feet and Gloucester County with 22,241 square feet. Both Burlington County and Camden County fell 30 basis points to 3.2 percent, while Gloucester County remained steady at 5.4 percent. The two largest moves were Revel Nail, which occupied 115,681 square feet at 90 Coles Road in Camden County and Ta Chen International occupying 96,529 square feet at 1651 River Road in Burlington County. Additionally, Amazon leased 1.0 million square feet of warehouse space at 1101 East Pearl Street. NKF Senior Managing Director Kurt Montagano said, “The market is stretched tight between e-commerce firms serving the region and companies out of New York and Northern New Jersey searching for cheaper warehouse space. Expect rates to continue to rise under this demand pressure.”

The New Castle County, Delaware market continued to slow during the second quarter of 2018, reporting 84,463 square feet in negative absorption. Despite the occupancy loss, the vacancy rate dropped 80 basis points to 14.5 percent, as the 394,000-square-foot building, located at 2100 Ogletree Road, was partly demolished and converted into a mixed-use development. The average direct asking rental rate for the market jumped $0.90 per square foot to $5.57, on the strength of a $1.49 per square foot increase among general industrial properties. Despite rent decreases among warehouse and R&D/flex properties, rents among both sectors, as well as the general industrial sector, remained at near all-time highs.

The Southeastern Pennsylvania market closed the first quarter 2018 with 918,714 square feet in negative absorption. In the suburban portion of the market, every submarket posted negative absorption except for Chester County, which posted 212,944 square feet in occupancy gains. The largest loss leaders were Philadelphia County (274,922 square feet) and Montgomery County (237,157 square feet). In Philadelphia, Steel Heddle vacated 267,000 square feet from their building at 2100 W. Allegheny Avenue, and in Montgomery County, John Middletown Company vacated 167,406 square feet at 475 North Lewis Road. Vacancy for the quarter ticked up 60 basis points to 5.7 percent, but is still 10 basis points less than one year ago. Eustace Wolfington, NKF senior managing director, had this to say, “Throughout Philadelphia and its suburbs, there is an acute shortage of both land and available warehouse space. Demand, however, has continued to increase, leading to rising rents across the board.” This quarter, the overall lease rate rose $0.03 to $5.59 per square foot, a record high for the market. The rates spiked especially in the more populous and densely packed submarkets; Philadelphia increased $0.22 per square foot to $4.88 and Montgomery County rose$0.27 per square foot to $6.03.

Vacancy for I-81/78 Corridor warehouse/distribution properties increased80 basis points to end the quarter at 7.4 percent. The rise was mainly due to two 1.0 million-square-foot buildings delivering vacant, 1620 Van Buren Road in Lehigh Valley and 100 Goodman Drive in Central Pennsylvania, as well as a455,000-square-foot building delivering vacant at 151 Commerce Drive in Northeastern Pennsylvania. 1620 Van Buren Road was pre-leased by UPS, though they have yet to occupy. The market recorded 2.0 million square feet of positive absorption, driven by the occupation of newly delivered space at the Hanover Ridge Trade Center in Northeastern Pennsylvania. Two buildings delivered there, an 842,880-square-foot building occupied by Adidas and a 358,498-square-foot building occupied by Ground Direct. Tim Brogan, NKF senior managing director, noted, “Though the market is tight, speculative and proposed development has been keeping pace with the region’s high demand.” Still, increased demand has led to higher lease rates across the market. The average direct asking rental rate increased $0.05 per square foot from the prior quarter to $4.51. The average warehouse/distribution rent grew by $0.04 per square foot from the first quarter to $4.54 per square foot, and increased $0.17 per square foot from mid-year 2017.

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