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Warehouse activity indicates improved market

By , - Last modified: June 8, 2012 at 11:13 AM

Sales, acquisitions and constructions in the midstate warehouse real estate market have increased in the past year, which some executives said is evidence of an improving climate.

While many of the deals are for existing warehouses, there also is new construction for some of the first speculative buildings in Central Pennsylvania since 2008. That’s a symptom of improved confidence and an economy on the mend, executives said.

“I would say the market is definitely strengthening,” said Gary Frederick, senior vice president of Texas-based Hillwood Investment Properties. “If you take the whole market in aggregate, there’s a lot of development on the speculative market.”

Hillwood, the Dallas real estate management firm that’s part of

H. Ross Perot Sr.’s stable of companies, acquired two Cumberland County warehouses in 2010, then flipped them in 2011 for a combined $93 million. Hillwood sold the properties — a 1.2 million-square-foot warehouse near Newville and a 600,000-square-foot warehouse in Carlisle — in May to New York-based KTR Capital Partners.

KTR declined to comment on the acquisitions and the midstate market.

Hillwood will remain involved in the strong market, Frederick said. It owns a warehouse in Lebanon County near Palmyra and just last year acquired and rezoned another nearby property in Derry Township, Dauphin County, to be developed with warehousing.

However, it might be some time before construction begins, because Hillwood is looking to lease part of the proposed warehouse first, Frederick said. While the speculative market has improved, there are still risks, he said.

“The market for speculative building is still just a trickle of what historical numbers were,” Frederick said.

Hillwood isn’t the only player in Central Pennsylvania’s warehousing and distribution market for improved properties near the region’s interstates and highways. California-based Panattoni Development Co. also has acquired key purchases.

Panattoni is building a 1.4 million-square-foot warehouse in the same Newville-area business park where KTR owns the warehouse that’s home to Florida-based Office Depot Inc.’s northeast distribution hub. Sacramento-based Panattoni started the warehouse last year at Key Logistics Park in Penn and West Pennsboro townships. The building will add about 200 jobs when London-based home and personal care products distributor Unilever moves a distribution facility there.

“We’ve seen significant increases in investor and tenant demand in bulk industrial real estate,” said Reid Townsend, a partner in Panattoni’s Baltimore office.

The development company also acquired a 200,000-square-foot industrial space in York County from Milwaukee-based motorcycle manufacturer Harley-Davidson Inc., which has its largest factory in Springettsbury Township. Earlier this year, Panattoni leased the space in East Manchester Township to L’Oreal USA.

Panattoni is planning two additional warehouses totaling 1.5 million square feet in Union Township, Lebanon County.

The market is much stronger with the improving economy, which means it can support build-to-suit and speculative real estate deals, Townsend said. Speculative deals were virtually non-existent during the recession, in part because consumer activity didn’t support distribution expansion but also because lending requirements were stricter, companies said.

Consumer products companies and retailers are much more interested now that people are spending a little more. They like the midstate because it offers a convenient location to reach about 40 percent of the U.S. population in a day’s drive, Townsend said.

“We’re consistently looking for new investment opportunities in Pennsylvania for bulk distribution,” Townsend said.

Other projects are nearing completion as well, which executives say further emphasizes the rebounding warehouse market.

Chester County-based Liberty Property Trust is building a 972,000-square-foot speculative warehouse at the Carlisle Distribution Center on the Cumberland County borough’s west side and could finish the project soon. Company executives were not immediately available for comment.

Texas-based Trammell Crow Co. is building a 700,000-square-foot warehouse off Walnut Bottom Road in Dickinson and South Middleton townships, Cumberland County. The warehouse is the first of two in the $60 million Mountain Creek Distribution Center that will have a total of 1.3 million square feet.

The first building could be complete by the end of August, said Andrew Mele, a Trammell Crow principal in its Montgomery County office. A lease also could be coming soon.

“We’ve had a decent amount of activity (from prospective tenants) considering we’re still three months away from completion,” Mele said. “It would be atypical to be at this stage and have a lease.”

What the rest of this year’s economy will bring is anyone’s guess, but there’s confidence in the market because of early inquiries and warehousing demand around the country, he said.

“If you think there’s only going to be one deal in a year, you have no business being in speculative building,” Mele said. “But if you think there’s going to be dozens of deals, you’ll go ahead and build it.”

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