6C — July 27 - August 9, 2018 — Brokerage Directory — M id A tlantic
Real Estate Journal
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Pennsylvania I-78/I-81 Corridor Industrial, Q2 2018 Market returning to supply demand balance
he PA I-78/I-81 Corridor faced supply constraints in 2015 and 2016. Pent- up demand continued to grow following the post-recession era and start of the e-commerce boom. Overwhelming demand led developers to break ground on speculative projects without hesitation. As of today, build- ings constructed in 2015 and 2016 posted vacancy rates at 6.7% and 9.0%, respectively, compared to buildings that completed construction in 2017 and year-to-date 2018 where vacancy sat at 40.6% and 47.9%, respectively. The recent decline in pre- T
leased new construction is not pointing toward diminished demand. Instead, the vacancy rates point to the fact that the mar- ket is returning to a supply- demand balance, and the lease- up time for speculative proj- ects lengthened. With demand growth well in place, newer space will be absorbed. ABSORPTION The PA I-78/I-81 Corridor market posted more than 7.0 million s/f of positive net ab- sorption thus far in 2018. Cen- tral PA saw the most occupancy gains of the Corridor’s sub-
markets in the second quarter, followed by Lehigh Valley and Northeastern PA, respectively. Within Central PA, Cumber- land county experienced 2.0 million s/f of net absorption in Q2 2018 with the delivery of syncreon’s 1.0 million s/f built- to-suit in Carlisle and multiple smaller deals. Expect demand to remain healthy in the second half of the year with over ten requirements of 1.0 million s/f or greater currently active in the market. VACANCY Year-over-year, overall va- cancy rose slightly by 30-ba- sis points (bps) to 6.1%. The vacancy rate for the market remained stable as demand for space kept pace with the over 20 million s/f of new product added to the inventory since the beginning of 2017. In North- east PA, there was an 80-bps decline in vacancy from the previous quarter, an indication of demand continuing to push westward from the Lehigh Val- ley to be closer to the I-78/I-81 split. With a number of large requirements expected to land in the coming quarters, vacancy should remain steady around the 6% mark. DEVELOPMENT PIPELINE Current development activity in the PA I-78/I-81 Corridor remained healthy with 11.4 million s/f under construc- tion. Although the pipeline volume was lower than is had been since Q4 2016, 4.4 mil- lion s/f delivered this quarter, which is the highest quarterly total achieved over the same period. More than half of the 4.4 million s/f that completed construction was leased. There are several planned buildings expected to break ground in the coming quarters, but develop- ers are displaying more cau- tion, some preferring to pause for under-construction or newly delivered projects in the same vicinity to lease before kicking off a new start. LEASE RATES Overall asking rates in the Corridor reached their highest historical levels in Q2 2018. Year-over-year, lease rates increased 8% to the current rate of $4.57. In Central PA, asking rates rose $0.09 from last quarter to $4.44. An inter- esting pricing gap was observed in Lehigh Valley this quarter; first year rents for new proj- ects in Northampton County continued on page 8C
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