Demand for efficient, modern logistics space in the Interstate 78/I-81 corridor has led to an increase in warehouse/distribution building size.
This conclusion is one of several CBRE released in its biannual logistics report, which evaluates market trends among the inventory of properties in this corridor that includes Berks, Carbon, Lehigh, Monroe, Northampton and Schuylkill counties, as well as part of other counties in central and northeastern Pennsylvania.
The report analyzes the market for institutional-grade warehouse distribution properties by submarket, class and size. These large properties typically draw attention from national or international investors.
Sean Bleiler, senior vice president of CBRE Inc., which has an office in Upper Macungie Township, said the markets are strong.
“We’ve seen a strong focus on deals that want to service the New York market,” he said.
“Overall, the Valley is very strong, but I think the interesting thing is these deals have grown in building size. One million square feet is getting too small for the market.”
Size is one of the most notable trends in the market, as many new buildings are going up that are 1 million square feet or larger.
Bleiler said he is seeing several deals for buildings larger than 1.1 million square feet in the Lehigh Valley market now for similar type users. Retailers are driving some of those larger deals, and in some of those buildings, the employee head counts are coming down because of automation, he added.
“There’s also a drive to have more goods in close proximity to New York,” Bleiler said. “I think the market is very strong; we are seeing more activity in the same size range coming up behind it.”
He referred to the growth occurring along the Route 33 corridor in Northampton County.
“We are seeing the geography grow,” Bleiler said. “You are starting to see developers push out farther out as long as there’s interchange access and labor.”
As an example, J.G. Petrucci Co. recently built Wind Gap Logistics Center at the Route 512 exit off Route 33.
Furthermore, the I-78/I-81 corridor leads all major logistics markets in the country for the largest newly developed warehouse product, the report said. In addition, the Lehigh Valley experienced the fastest growth among the I-78/I-81 submarkets and commands the highest average rents along the I-78/I-81 corridor.
“As you push farther out, you see additional tracts along the I-81 corridor,” Bleiler said. “Eventually, all these markets will be seamless; they are quickly growing together.”
From a national perspective, investors view this corridor as the eastern Pennsylvania market, he said.
While the Route 33 corridor is becoming very active, and the Route 412 industrial park in Bethlehem shows “real strong” growth, one of the centerpieces of the Lehigh Valley market is the FedEx Ground megahub under construction and expected to open in Allen Township in September. That project is an example of the larger industrial properties under construction, with an expected 1.2 million square feet upon full build-out.
“I think FedEx is going to be great for the market,” Bleiler said. “They have really spurred a lot of growth.”
As an example, FedEx recently estimated its capital investment for its new Memphis hub project in Tennessee would exceed $1 billion over a six-year period, according to a news release. Following finalization of the project plans, construction could begin in 2019.