By Joseph Latina, SIOR & Christopher Moore, CCIM, LMT Commercial Realty/CORFAC Int’l.
In recent years, the price increases of industrial land in Delaware have been the subject of interest and scrutiny, reflecting broader trends in the state’s economy and real estate market.
One of the primary drivers of the state’s industrial land prices is its strategic location within the Northeast Corridor, a densely populated and economically significant region stretching from Boston to Washington, D.C. The proximity to three adjoining states, the Port of Wilmington, and Philadelphia International Airport enhances the attractiveness of industrial development in Northern Delaware. New Castle County serves as a focal point for industrial activity, with its strategic position along the Delaware River. The state boasts an excellent transportation network, including major highways, railways, the Port of Wilmington, and the Delaware Memorial Bridge.
Due to these favorable locational conditions, there have been several recent industrial developments in Northern Delaware. The 3.8 million square foot Amazon distribution center constructed on the former General Motors Boxwood Road site in Newport has caused concern with local government and constituents related to unchecked “by-right” industrial development. As a result, the county and state have become more hostile to industrial development triggering recent changes to the industrial zoning approval process in the form of building size regulations and required site and green space improvements.
These new restrictions have created additional layers and added more time in obtaining entitlements, thereby creating increased carrying costs for developers. This is driving developers to build larger buildings to gain economies of scale and control costs, when in reality the market is in desperate need of smaller industrial and flex buildings to accommodate small and mid-size businesses.
This, coupled with increased labor and construction costs has increased the cost of new development with finished costs approaching $175 psf as opposed to a much lower cost of $100-$125 psf just a few years ago.
Many investors and developers from surrounding markets such as New Jersey, New York and Pennsylvania have been pushing up demand for existing industrial warehouse buildings. The market has seen prices grow from $60-$80 psf just 4-5 years ago to over $150 psf currently. Triple-net rents have also risen in the last 5 years from $5-$7 psf/annually with most landlords now asking $11-$12 psf/annually for industrial base rents.
The current market for unimproved zoned industrial land in New Castle County, Delaware, has a wide range of prices from as low as $150,000 per acre for more challenging properties to as high as $1+ million per acre depending on location, buildable acreage, and access to roads and utilities. Industrial zoned land with improvements and utilities but without substantial improvements have been trading as high $400,000 to $750,000 per acre in some instances and smaller infill lots or assemblage parcels have reached as high as $1 million per acre for heavy industrial zoned laydown yards and land near the Port of Wilmington. Land prices in more development friendly markets like Middletown, Delaware, are trading at consistently higher prices due to a more predictable and shorter approval process.
The size and shape of the parcels appear to be impacting values as well, with larger parcels traditionally trading at a slightly discounted rate. The presence of flood zones, wetlands, dense forestry, and topography are also crucial to ultimately determining the value of Industrial land. Understanding buildable versus non-buildable acreage is an important part of a buyer’s due diligence process as non-buildable acreage has very little value.
Unfortunately, these increased costs are ultimately absorbed by the end-users and passed on to the consumer. Controlling these costs could certainly assist in our ongoing battle to combat inflation.
The good news is that after two consecutive years of tremendous growth followed by a mild contraction in 2023, the local industrial market is approaching stabilization this year.
Joseph Latina, SIOR, and Christopher Moore, CCIM are managing principals at LMT Commercial Realty/CORFAC International.