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Use of big-box industrial space soars in Valley and is projected to rise even higher

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Colliers International Group Inc. ranked the Eastern Pennsylvania submarket as one of the most rapidly growing markets in the nation. In an industrial park along Route 33 in Palmer Township, many properties have been cropping up, including this one serving XPO Logistics and FedEx.
Colliers International Group Inc. ranked the Eastern Pennsylvania submarket as one of the most rapidly growing markets in the nation. In an industrial park along Route 33 in Palmer Township, many properties have been cropping up, including this one serving XPO Logistics and FedEx. - (Photo / )

A new report by Colliers International Group Inc. of Philadelphia shows demand from logistics and e-commerce users has made the Lehigh Valley market emerge as one of the most robust in the nation.

“In our opinion, that’s what’s really the main ingredient that drives the demand we see,” said Mark Chubb, senior managing director of Colliers, based in its Conshohocken office. “There’s no other market tighter than the Lehigh Valley.”

The firm’s Industrial Logistics & Transportation Solutions 2016 Mid-Year Outlook - Big Box Market report focuses on big-box facilities 200,000 square feet or larger. These industrial properties also are primarily used for distribution, with ceiling heights of 28 feet or higher.

After examining six major North American distribution markets, the firm said positive e-commerce growth and the modernization of the nation’s supply chain continue to boost the nation’s industrial real estate market, drawing a record number of tenants.

It’s a trend that’s expected to continue, particularly in the Lehigh Valley/Interstate 78 submarket, which comprises Berks, Lehigh and Northampton counties, according to the report.

Led by the Lehigh Valley/Interstate 78 submarket, overall growth topped 8 percent year-to-date.

An 8 percent growth rate in the Lehigh Valley is, from a market perspective, “staggering,” Chubb said.

“That metric is really above any other market,” he said

That 8 percent contributed significantly to overall market growth of more than 3 percent. This level of growth would rank the eastern Pennsylvania region as one of the most rapidly growing markets in the nation, the report said.

“We are exceeding historic rental growth,” Chubb said.

In the Lehigh Valley, the report shows feasible market rents now top $5 per square foot.

With lower vacancies, higher effective rates and strong absorption, the demand for industrial space will continue to outpace supply in core markets, such as the Lehigh Valley, the report said.

“As new developments are occurring, there is space being absorbed within three months of completion,” said Michael Zerbe, senior managing director at Colliers’ Conshohocken office. “That shows there is a healthy balance.”

Often, by the time construction is finished, the buildings are already leased to tenants.

“Activity is really strong and remains strong in the Lehigh Valley,” Chubb said. “If you needed to occupy 400,000 square feet, available today, you couldn’t find it. By the end of October, in all likelihood, the ones going up now will be leased. I don’t think we anticipate that dynamic changing, certainly over the next 12 months.”

In fact, with a growing activity pipeline, new activity and anticipated deals could translate to a higher volume of transactions during the second half of 2016, the report said.

Construction of these properties is expected to continue at a strong pace, as new deliveries nearly topped 7 million square feet and are on track to total more than 15 million square feet by the end of the year.

Amazon’s 1.1 million-square-foot warehouse in Palmer Township and California Cartage Co., which took a 538,650-square-foot warehouse in Bethlehem, represent two of the top five tenant transactions that occurred by mid-year.

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Brian Pedersen

Brian Pedersen

Reporter Brian Pedersen covers construction, development, warehousing and real estate and keeps you up to date on the changing landscape of our community. He can be reached at brianp@lvb.com or 610-807-9619, ext. 4108. Follow him on Twitter @BrianLehigh and read his blog, “Can You Dig It,” at http://www.lvb.com/section/can-you-dig-it.

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