After slow first quarter, midstate warehouse market picked up in Q2

Turns out one slow quarter doesn’t make a year when it comes to warehouse development in Central Pennsylvania.

After a sluggish first quarter, where the Interstate 78/Interstate 81 corridor saw just under 200,000 square feet of absorption, the corridor bounced back big in the second quarter and year-to-date absorption is now nearly 4.8 million square feet, according to CBRE Research, an arm of real estate firm CBRE Group Inc.

CBRE defines that region as Central Pennsylvania, the Lehigh Valley and Northeast Pennsylvania.

The midstate accounted for nearly half of that year-to-date tally, which was the fastest pace since the end of 2014, according to the CBRE.

The warehouse demand in this region is being driven largely by retailers and third-party logistics companies as retail shifts more to an omni-channel model, meaning an online and brick-and-mortar presence.

In addition to space filling up, there was more than 15.4 million square feet of industrial space under construction at the end of the second quarter. About 6.1 million of that total was in Central Pennsylvania, while another 6.8 million was in the Lehigh Valley, one of the tightest and most expensive markets.

Warehouse and distribution center development has been pushing more around the I-78/I-81 split. Some of the new projects have been in Berks County, which is in the Lehigh Valley, while Lebanon County projects fall under Central Pennsylvania.

Nevada-based Dermody Properties, for example, just broke ground on a nearly 1.1 million-square-foot in Bethel Township, Berks County.

Lease rates averaged $4.61 per square feet in the Lehigh Valley at the end of the second quarter. Northampton County was sitting at $4.95 per square foot in the quarter, up from $4.88 in the first quarter report, the highest rate in the region.

By comparison, the average lease rate in Central Pennsylvania was $4.34. That was down from $4.42 in the first quarter. Cumberland County was the most expensive county in the midstate, with average lease rates of $4.58 per square foot.

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