A report from real estate firm CBRE Inc. showed the highest average asking lease rates for industrial space along the Interstate 78 and 81 corridor in the first quarter, reaching $4.74 per square foot.
The higher rates reflect growing confidence among property owners who can ask for more from tenants who are showing strong interest in the region.
In comparison, the first quarter of 2018 showed average asking lease rates of $4.52 per square foot. For this year’s first quarter, rents in some of the Lehigh Valley’s counties posted asking lease rates that exceeded $6 per square foot.
For the remainder of the year, CBRE said it expects lease rates to grow but at a much slower pace than before as nearly 16 million square feet of construction awaits completion.
“I think the Lehigh Valley is the market leader in lease costs and interest will grow, but at a slower pace,” said Bill Wolf, of CBRE’s Upper Macungie Township office. “There’s a good amount of development coming.”
Spring typically brings more project announcements and an increase in the supply of buildings, though CBRE expects that will hit a plateau, he added.
Vacancy rates also increased slightly, rising from 5.9 percent in the first quarter of 2018 to 6.1 percent this quarter.
“This is a very manageable rate,” Wolf said. “It’s showing equilibrium in the market which is healthy for the vacancy rate. If there is no supply you will lose interest from corporations and they will go elsewhere.”
The vacancy rate should stay consistent for the rest of the year, he said.
He acknowledged that it’s difficult to develop in the Lehigh Valley since land is getting scarce.
“There aren’t a lot of prime sites left,” Wolf said.
More than 1.4 million square feet of new buildings hit the market in the first quarter, with the majority delivered in the Lehigh Valley. Construction starts during the first quarter totaled more than 2.6 million square feet as developers started construction on new buildings in central and Northeast Pennsylvania. Right now, the construction pipeline has 16.5 million square feet of new buildings underway.
The market report considers Northeast and Central Pennsylvania and the Lehigh Valley as the markets in the I-78/I-81 corridor.
Development could move further west in Berks County and north to Monroe County, he said.
Central Pennsylvania, meanwhile is not as constrained with land as the Lehigh Valley because of the population growth, Wolf said.
In Central Pennsylvania, the report shows a total 6.3 million square feet under construction, while Lehigh Valley shows 6.3 million and Northeast shows 6.9 million.
“With these new industrial buildings, they are not all distribution, we are seeing a lot of manufacturing interest,” Wolf said.