Philadelphia is well-positioned in the Northeast to flourish in the industrial sector in 2017. With a centralized position in the Boston-New York-Washington, D.C. corridor, Philadelphia has capitalized on its superb location to firmly establish itself as a distribution hub leading to sustained positive momentum in all key market sectors. The e-Commerce market has been experiencing significant growth and the demand for near immediacy in delivery has been the driving force behind the strong performance of the industrial sector nationwide over the past few years, especially in the Northeast.
In 2016, the industrial sector in greater Philadelphia had a banner year for absorption with a net positive of 9,275,130 square feet absorbed. That represents the largest growth in occupancy since the onset of the Great Recession and places Philadelphia among the top performing markets in the U.S. for net absorption in 2016. Vacancy rates for the region have fallen to 6.9% – the lowest they’ve been since 2008. Asking rental rates rose steadily throughout 2016 and stood at $4.77 per square foot at year end – the highest they’ve been since 2008.
Following a record year for industrial sales in 2015, sales volume remained strong in the greater Philadelphia region in 2016 at over $860,000,000 in sales. Exeter Property Group, STAG Industrial Management, and Endurance Real Estate Group were among the more active buyers over the past year.
The hottest submarket in greater Philadelphia continues to be the Florence / Burlington, New Jersey area at Exit 6 of the New Jersey Turnpike. Exit 6 has the distinction of providing dual turnpike access as it serves as the connector to the Pennsylvania Turnpike. Couple this highly sought-after highway access with the attractive tax incentives available (in addition to the State’s GROW NJ program, Florence offers a PILOT program), it’s easy to see why Exit 6 has been drawing suppliers serving the Tri-State area.
Developers have taken notice as well. This submarket has witnessed a surge in new industrial construction in recent years and 2016 took that to a new level with 2,386,029 square feet delivered to market. Cedar Lane in Florence has been particularly active. In 2014, NAI Mertz was enlisted to sell the Cedar Lane Industrial Park and an adjacent 50-acre parcel. In a sale I orchestrated on behalf of NAI Mertz, Liberty Property Trust purchased the 50 acres. They developed a 613,920-square-foot facility on the site, which has been leased to Amazon as part of its aggressive expansion throughout New Jersey. At the start of 2016, on behalf of NAI Mertz, I was responsible for the sale of an industrial building directly across from Amazon’s new facility to First Industrial Realty Trust. The company demolished the building and recently completed construction of a modern 577,200-square-foot industrial building, which I am currently leasing on behalf of the firm. A few miles south on Route 130, Clarion Partners delivered three of the four buildings planned for its Burlington Industrial Park, bringing 1,194,909 square feet to market. All of the three buildings are now fully leased with H&M among the tenants.
In Gloucester County, New Jersey, the Logan Township / Swedesboro area will be seeing its own mini-boom in construction in the first half of 2017 with 752,520 square feet slated to be delivered. The majority of the space will be distribution warehousing. Dermody Properties is slated to complete a 393,120-square-foot building for XPO Logistics Supply in February. Liberty Property Trust will finish work on a speculative 302,400-square-foot distribution building in April. In two sale transactions I completed on behalf of NAI Mertz, we were able to assemble a 216-acre parcel on Route 322 for developer J.G. Petrucci Co. They are currently seeking approvals for industrial development.
Demand for warehouse space strategically located for reach and rapidity will remain strong for the near future. With its position as the keystone of the northeast corridor, the greater Philadelphia region should experience another successful year for industrial real estate development, leasing and sales in 2017.
* Article originally appeared in the January/February 2017 issue of Northeast Real Estate Business
Last week’s speech by Fed Chair Janet Yellen offered some clues about the timing of an interest rate rise. It seems September has become a possibility (50% in my eyes), but this will also be determined by Friday’s August employment number. There appears to be a stable supply of capital from banks, portfolio lenders, and CMBS lenders, offering opportunities for borrowers to secure loans near historic lows.
Though if there is a hike in September, this will slightly alter what we have seen in this low rate environment for quite some time now, which will have an impact, albeit slightly, on the ability for our customers, clients, and prospects to secure financing, and the potentially signal a rise in Cap rates on investment properties.
Since Yellen does not want to “mess” with the election, she may forgo September and look to November/December for a rate hike of 0.25%, but will also likely guide that there will be more hikes in 2017….possibly 2 or 3 which is important for us to keep an eye on.