The region's growth of industrial properties along the Interstate 78-81 corridor hit a record-breaking number of new deliveries, according to a new fourth quarter market report from CBRE.
Lehigh and Northampton counties captured much of that growth, but experts say the market is expanding beyond those borders and further into Berks County and north toward the Wilkes-Barre/Scranton region.
“The market is really pushing the borders,” said Sean Bleiler, senior vice president at CBRE, which has an office in Upper Macungie Township. “There’s a bunch of development along the Route 33 corridor. You will see additional sites on Route 33.”
Notable deals in 2018 included:
• QVC, which signed a lease for a 1-million-square-foot facility in Bethlehem;
• UPS, which signed a lease for space in a more than one-million-square-foot building in Palmer Township off Route 33;
• Liberty Property Trust, which leased part of a 1.1-million-square-foot-building it owns in Lower Macungie Township.
Throughout the I-78 and I-81 corridor, developers added another 17.6 million square feet of new supply to the inventory, with 16.7 million square feet of occupancy gains during 2018, the report said. That figure represents a record-breaking amount of new product for the corridor.
The previous record of construction completions that CBRE recorded was in 2016, when the market added 16.9 million square feet.
Last year saw more 1-million square-foot warehouses completed compared to any other year, the report said. Right now, there’s enough future demand to continue that trend, Bleiler said.
“We see the I-78 corridor as very popular,” Bleiler said. “There, we see the boundaries of what we consider the core Lehigh Valley [begin to] stretch.”
Heading north, there are some viable sites along the Route 33 corridor, he said.
As an example, American Tire Distributors opened a 1-million-square-foot build-to-suit facility in Blakeslee, Monroe County in November, helping boost absorption levels in the Northeast Pennsylvania market.
Depending on the users of these facilities, they still tend to focus on the New Jersey or New York market, including those industrial properties along Route 61 in Berks County, he added.
Average asking rents in the Lehigh Valley are closer to $6 per square foot, Blieler said.
Outside the valley, average asking rents are closer to $5 per square foot.
“Lehigh Valley tends to be a more expensive market,” Blieler said.
Though industrial buildings may appear larger, there’s still a lot of deals in this market in the smaller range, he added. These include some of the larger manufacturers who are driving the need for new facilities by adding production lines into their buildings.
“As they need more capacity, they push warehousing out to other buildings,” Blieler said.
Although developers added more than 4-million-square-feet of new product to the corridor’s inventory in the fourth quarter, market vacancy remained stable, quarter over quarter, at 6 percent. Surging demand throughout the year kept pace with the arrival of new supply in the corridor, the report said.
Overall, he expects this strong development to continue, particularly in the Lehigh Valley section of the corridor.
Developers broke ground on more than 9 million square feet of new product in the fourth quarter and of that total, five properties were one million square feet or larger.
“I think the valley will remain strong,” Blieler said. “In the last downturn, we never really bottomed out. Tenants who want to be here need to be here, so I think there’s great demand.”