Central Pennsylvania market continues to draw the attention of investors & developers
Central Pennsylvania is an integral part of the Philadelphia Region, one of the largest and most active industrial markets in the country. Spanning roughly 5,200 square miles and eight counties, this critical submarket includes a rare combination of rail, road and parcel infrastructure that is uniquely capable of projecting one-day service throughout the Northeast and Mid-Atlantic United States, and practical same-day service into coastal markets from New York to Virginia.
The largest of the Philadelphia submarkets, Central Pennsylvania is widely held, with both private and public equity well represented. Multi-market players such as Industrial Property Trust, Liberty Property Trust, Clarion, Hillwood, Exeter Property Group, USAA, Dermody, Cabot, High Street and others have made numerous investments in Central PA. International players such as Prologis, and Global Logistic Properties hold market leading positions, and new entrants like Australia-based developer Goodman Birtcher, who recently broke ground on a new class A+ campus of two million s/f at Exit 44 on I-81 in Carlisle, PA, continue to find the area to be an attractive investment.While Central Pennsylvania is considered a submarket of the overall Philadelphia industrial market, it could easily stand on its own. Boasting over 250,000,000 s/f of standing industrial stock, it accounts for approximately one quarter of the total stock within its parent PHL market and, along with the Lehigh Valley, routinely accounts for the vast majority of the leasing activity. The bulk of the activity is driven by need for larger warehouse and distribution space, with tracked requirements averaging well over 250,000 s/f. In an effort to keep our finger on the pulse of the market, Lee & Associates of Eastern Pennsylvania focuses our research efforts on warehouse and distribution buildings 100,000 s/f or larger. Unsurprisingly, that “Core Group” subset, consisting of approximately 125,000,000 s/f of existing space, represents well over 25% of the parent market’s core stock, as well as a dis-proportionately large share of ongoing development and construction activity.It should be no surprise that the market continues to draw the attention of investors and developers. At the close of the first quarter, Central Pennsylvania vacancy stood below structural levels at 5.96% and over the last 12 months the market recorded 4.8 million s/f of positive absorption. Assuming that pace continues, current construction activity (5.5 million s/f of speculative starts) represents a little over a one year supply of space. All indications with regard to demand are positive – leasing activity focused on warehouse and distribution space remains above normal, with a majority of that demand primarily driven by the 3PL, Consumer Goods and Food and Beverage industries. A large portion of demand is new to the market, which explains the strong positive absorption the market has experienced over the last 12 months.
Because of its unique geographical position and transportation infrastructure, the Central Pennsylvania market will continue to be a desired location for industrial investment and development. Looking ahead, Lee & Associates is actively following a significant number of future development projects in Central Pennsylvania. These projects range from concept plans to pad ready sites, and collectively represent approximately 25 million s/f of potential supply. Approximately half of that total is currently planned along Interstate 81, which stretches from the market’s eastern edge in Lebanon County south to the Maryland border, reinforcing Central Pennsylvania’s importance as a vital link connecting the Northeastern United States to the Mid-Atlantic region.
Michael Hanes leads research for Lee & Associates of Eastern Pennsylvania, LLC.