Q2 2012 Philadelphia, Pennsylvania Industrial Submarket Trends

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Q2 2012 Philadelphia, Pennsylvania Industrial Submarket Trends

The eastern Pennsylvania industrial market area may be evaluated as three concentric rings. In the center the City of Philadelphia, co-terminus with Philadelphia County, is a former manufacturing powerhouse fallen on hard times. Much of the story there involves redevelopment of obsolete buildings, niche industries related to the city’s large institutions, and historic industrial activities left over from its industrial heyday, such as the food distribution center, airport and Navy Yard. In the middle, the Philadelphia suburbs and Southern New Jersey are desirable but expensive locations for R&D and distribution, with little land left for further expansion. Large scale distribution and light manufacturing activity has migrated farther out to the rural areas, north to the I-78 corridor, in the Allentown/Bethlehem/Easton Metropolitan Statistical Area (MSA) (Lehigh Valley) area, farther north on I-81 to Scranton/Wilkes Barre, and west to the I-81 corridor in the Harrisburg area. These are beyond the Reis market area.

Philadelphia County

  • Reis reports a vacancy rate of 13.7% for 55.8 million square feet of warehouse/distribution space in Philadephia County, second highest among nine submarkets, and an average asking rent of $3.39 psf, the lowest metrowide. Low rents, despite a central location, are indicative of an old, obsolete inventory and Philadelphia’s high wage tax.
  • The vacancy rate fell 50 basis points from the prior quarter on a strong 300,000 square feet of net absorption, but is up 260 basis points from a year earlier. Both the average asking rent and the average effective rent increased 0.3% during the quarter, with the latter at $3.09 psf. The year-over-year decreases are 0.6% and 1.3%, respectively.
  • For 12.4 million square feet of Flex/R&D space, the vacancy rate is 6.1%, lowest among eight submarkets according to Reis, and the average asking rent is $5.50 psf, also the lowest.
  • The vacancy rate has been essentially flat for a year, with net absorption at just 5,000 square feet during the first half of 2012. The asking average increased 0.2% during the second quarter, with the average effective rent up 0.4% to $5.08 psf. The asking average is down 2.1% from a year earlier, while the effective average is down 2.5%.
  • “The vacancy rate in Philadelphia County remained unchanged at 9.0%,” according to Colliers. “Activity stagnated and larger blocks of space, which came back on the market at the end of last year, remained vacant. However, there were prospects in the market, particularly for user purchase.” This source puts the average asking rent at $3.95 psf.

Pennsylvania Suburbs

  • Acccording to Reis, the 12.5 million square feet of warehouse/distribution space in Upper Bucks county has a vacancy rate of 5.3%, second lowest among the submarkets, and an average asking rent of $4.45 psf. For 37.9 million square feet of warehouse/distribution space in Lower Bucks County, Reis reports a vacancy rate of 9.4% and an asking rent of $4.64 psf.
  • In Lower Bucks County, the vacancy rate edged down 10 basis points in the second quarter, while rents were unchanged. In Upper Bucks, the vacancy rate fell 40 basis points as the average asking rent increased 0.5% and the average effective rent rose 0.7% to $4.17 psf.
  • Reis reports a vacancy rate of 11.8% for 4.2 million square feet of Flex/R&D space in Lower Bucks County, and an average asking rent of $7.06 psf. The vacancy rate plunged 540 basis points during the quarter on 226,000 square feet of net absorption. The average asking rent was unchanged, while the average effective rent was up 0.6% to $6.39 psf.
  • “Forest Incentives Ltd., which specializes in the distribution of promotional items for public broadcasting and select nonprofits, leased 48,366 square feet of warehouse and distribution space at the North American Technology Center in Warminster, Pa,” the Philadelphia Business Journal reported. “At the same complex, Bucks County Electric Works leased 8,000 square feet of warehouse space for a local distribution point for its electrical services business.”
  • For affluent Montgomery County, Reis reports a vacancy rate of 10.9% for 39 million square feet of warehouse/distribution space, and an average asking rent of $4.91 psf, second highest among the submarkets. For 8.9 million square feet of Flex/R&D space, the vacancy rate is 19.3%, the second highest, and the average asking rent is $7.54 psf, also the second highest.
  • The warehouse/distribution vacancy rate increased 60 basis points during the second quarter on 247,000 square feet of negative net absorption. The average asking rent fell 0.8%, and the average effective rent decreased 0.9% to $4.48 psf. The Flex/R&D vacancy rate increased 30 basis points on 25,000 square feet of negative net absorption. Rents were essentially flat during the quarter with the effective average at $6.82 psf.
  • “Malvern’s Great Valley Corporate Center near the US 202/PA 29 crossroads beat locations in Texas and California to win a new factory and lab complex for Germany’s privately-owned industrial-sensor and controls maker IFM Electronic,” Phillydeals reported in July. “What helped clinch the deal was ‘the new Turnpike exit and the 202 expansion,’ easing commutes for Reading and Philadelphia workers” as well as local engineering talent.
  • In recently developed Chester County, Reis reports a vacancy rate of just 5.0% for 16.2 million square feet of warehouse/distribution space, lowest in the region, and an asking rent of $5.18 psf, the highest. The vacancy rate fell 50 basis points during the second quarter on 86,000 square feet of net absorption, while the average asking rent increased 0.6% and the average effective rent rose 0.8% to $4.82 psf.
  • The Chester County vacancy rate for 6.5 million square feet of Flex/R&D space is 13.0% according to Reis, while the average asking rent is the highest among the submarkets at $9.82 psf. The vacancy rate decreased 40 basis points during the quarter, while the average asking rent increased 0.1% and the average effective rent rose 0.6% to $8.81 psf.
  • “Frontage Labs has signed a long-term lease on space at the Eagleview Corporate Center where it will now have room to grow and add up to 100 jobs over the next three years,” according to a Philadelphia Business Journal report in July. “The company will relocate its headquarters from the Valley Creek Corporate Center in Exton, which isn’t far from its new space.”
  • “The lease removes some of the quality lab space that had been thrown onto the market, though some large and smaller options remain throughout the region,” according to this source. “For example, Elan Pharmaceuticals vacated 45,000 square feet at 3000 Horizon Drive in King of Prussia and Bachem BioScience has space available at 3700 Horizon Drive.”
  • Delaware County, which includes the old and poor blue collar city of Chester as well as many suburbs, has a vacancy rate of 10.0% for 14.1 million square feet of warehouse/distribution space according to Reis, with an average asking rent of $4.53 psf. The vacancy rate increased 90 basis points during the second quarter, as the average asking rent decreased 0.7% and the average effective rent fell 0.5% to $4.13 psf.
  • For 5.9 million square feet of Flex/R&D space in Delaware County, Reis reports a vacancy rate of 10.0% and an average asking rent of $6.98 psf. The vacancy rate fell 50 basis points during the second quarter, as the average asking rent fell 0.3% and effective rent increased 0.2% to $6.34 psf.
  • In the close-in Pennsylvania suburbs “the vacancy rate increased sharply since the end of 2011, from 8.5% to 9.4%,” according to Colliers, which put the asking rent at $5.43 psf for the area as a whole.
  • This source puts net absorption for second quarter at minus 1 million square feet. “There were numerous space contractions in the 100,000- to 200,000-square-foot range by companies like JC Penney, Kellogg’s, IWCO and G&A Warehousing. Camden Iron & Metal lost its government funding and shifted operations to Camden, vacating a 550,000-square-foot complex in Delaware County.”
  • On the other hand, according to this source, “some companies are expanding. AirGas Safety will be a consolidation of other operations but will increase that company’s presence in Bucks County. Flowers Foods, the new owner of Tastykake, is expanding its Chester County bread baking facility by 90,000 square feet.”
  • Perhaps as a result of timing, whether occupancy is recorded when a lease is signed or occupancy occurs, Cushman & Wakefield reported postive net absorption. “Dow Chemical signed an 800,000-square-foot flex lease at Pfizer’s corporate campus in Collegeville, PA,” according to this source. “Mars Electronics also signed a flex lease this quarter for 64,000 square feet at 3222 Phoenixville Pike in Malvern, PA.”
  • The largest lease recorded in the area by Colliers was by Pet Valu, Inc. for 116,000 square feet at 2201 Green Lane in Bucks County.

Southern New Jersey

  • In Burlington County, Reis reports a 9.6% vacancy rate for 29.2 million square feet of warehouse/distribution space with an average asking rent of $4.26 psf. The vacancy rate rose 10 basis points during the second quarter, while the average asking rent fell 0.2% and the average effective rent decreased 0.3% to $3.88 psf.
  • For 3.2 million square feet of Flex/R&D space in Burlington, the vacancy rate is 19.5%, highest among the submakets, and the average asking rent is $7.13 psf. The vacancy rate fell 90 basis points in the second quarter as the average asking rent increased 0.1% and the average effective rent rose 0.5% to $6.44 psf.
  • For 21.2 milion square feet of warehouse/distribution space in Camden County, Reis reports a vacancy rate of 14.3%, second highest among the submarkets, and an average asking rent of $4.49 psf. The vacancy rate rose 20 basis points in the second quarter, the average asking rent was unchanged, and the average effective rent edged down 0.2% to $4.07 psf.
  • Reis reports a 12,000-square-foot warehouse/distribution building under construction at 160 Cooper Road in West Berlin.
  • According to Reis, the vacancy rate for 5.4 million square feet of Flex/R&D space in Camden County is 9.3%, second lowest among the submarkets, with an average asking rent of $6.51 psf, also the second lowest. The vacancy rate decreased 90 basis points during the second quarter, the average asking rent rose 0.5% and the average effective increased 1.2% to $5.94 psf.
  • The vacancy rate for 17.0 million square feet of warehouse/distribution space in Gloucester County is 11.4%, with an average asking rent of $3.96 psf, that is the second lowest among the submarkets according to Reis. The vacancy rate decreased 10 basis points during the quarter, and the average effective rent decreased 0.6% to $3.59 psf. The asking average fell 0.3%.
  • “The vacancy rate in Southern New Jersey increased to 12.3% during the second quarter,” according to Colliers. “The major reason for the continued increase in vacancy was the relocation of Becton Dickinson’s operations from 597,000 square feet in Pureland to North Carolina.” This source puts the asking rent for the area at $3.97 psf.
  • “There were some encouraging transactions,” according to this source. “Most notably, Subaru will be expanding to a new building in Florence and Burlington Coat Factory will be maintaining its headquarters and warehouses in New Jersey and expanding by 180,000 square feet.”
  • Cushman & Wakefield reports leases of 125,000 square feet by Ginsey Industries at 2078 Center Square Road in Gloucester County, and 80,500 square feet by Central Wholesalers at 1265 Glen Avenue in Burlington County. Both leases were for warehouse/distribution space.
  • According to Colliers, Ta Chen leased 188,300 square feet at 321 Dultys Lane and Supply One leased 168,800 square feet at 1090 Thomas Busch Highway.