Last year was a banner one for the pivotal eastern Pennsylvania industrial region, and more of the same is expected in 2021.
A report published Monday by real estate advisory firm Colliers International, Inc. (NYSE and TSI:CIGI) said that 29.2 million square feet worth of industrial — mostly logistics — deals were closed in 2020, a stunning 72% gain from 2019 levels and more than 12 million square feet higher than the previous record set in 2017. Net absorption, which measures new construction activity and vacancy rates, hit an all-time high of 16.2 million square feet, a 39% year-over-year increase and a sign of very strong demand, according to Colliers data.
Vacancy rates stood at 8.5% by year’s end, compared with 9.1% in the year-earlier period, Colliers said. Most of the vacant space was found in the northeast part of the state along the northern stretch of Interstate 81 and in Berks County on the southwestern fringe of the Lehigh Valley along westbound Interstate 78. However, Berks County’s vacancy rate of 16.1% was down considerably from the 37.1% rate in 2019, according to Colliers data. Berks County is a relatively new addition to the region’s industrial real estate base, and thus has a higher vacancy rate expected from a less-established locale.
Both of those submarkets are expected to tighten up during 2021, and the Northeast region could quickly clear out its few remaining available parcels that are larger than 750 million square feet, Colliers said.
The region comprises seven submarkets and 20 counties in the eastern, central and southern parts of the state, covering 11,416 square miles and three interstate highways. Like California’s Inland Empire east of Los Angeles and Long Beach, the eastern and central regions of Pennsylvania are critical U.S. distribution points for goods produced domestically and internationally.
In the greater Philadelphia area, which encompasses the Philadelphia metro and swaths of southern New Jersey and Delaware, there was little room at the inn last year. Overall vacancy rates stood at 2%, near all-time lows, while the vacancy rate for nearly delivered prime space known as “Class A,” stood at 0%, Colliers said.
Last year “reinforced the understanding that greater Philadelphia, with its access to plentiful labor and key corridors of travel, is a Tier 1 industrial market with room to run,” said Michael Golarz, a Colliers senior vice president based in Philadelphia. The Philadelphia market is on track to deliver 3 million square feet of new industrial construction and an additional 5.6 million square feet of construction starts, according to Colliers data.
Last year’s momentum is expected to carry through 2021, Colliers said. Demand will remain elevated, and a midyear pause in 2020 construction followed by a burst of leasing activity has created significant supply shortages, especially in the 1 million-square-feet-and-above category, Colliers said. This sets the stage for vacancy rates to drop at a rate similar to 2020 and average asking rates continuing their nine-year upward move, Colliers said.