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Central Pa.’s warehouse boom settling into a new normal for growth

This spring brought a potentially troubling watershed in the midstate’s rise to prominence as a prime location for logistics and warehousing operations.

The Interstate 78/Interstate 81 corridor through Lebanon, Dauphin and Cumberland counties saw just under 200,000 square feet of absorption in the first quarter, the smallest quarterly tally in four years, according to CBRE Research statistics first reported by the Business Journal in April.

It’s not necessarily headed for a downturn, but the market is evolving, and maturing.

“I wouldn’t call it saturated. I just think we’ve been on an incredible run,” said Ian Anderson, Philadelphia-based director of research and analysis for CBRE Research, which is an arm of real estate firm CBRE Group Inc.

That run saw warehouse development in the region shoot up as the nation recovered from the recession of the late 2000s, Anderson said.

Such development is expected to continue as the nation’s economy grows, and “we don’t see economic growth ending in the near term,” Anderson said.

But he also suggests that while “the going is still good,” the corridor may have seen “a peak in supply.”

Competition from other markets is one factor, but more so, perhaps, is the competition for desirable space within the region.

Why they came

One of the biggest shifts in American retail has been a bust for bricks-and-mortar stores, but a boon for the midstate.

Last year, e-commerce represented 10 percent of all U.S. retail transactions said Michael Alderman, vice president of leasing and development for Liberty Property Trust. As the current crop of e-friendly consumers, ages 18 to 35, approaches peak earning potential over the next decade, that number is expected to rise, Alderman added.

For this part of Pennsylvania, those statistics have represented a gold mine.

The I-78/I-81 corridor, which intersects with Interstate 83, gives the region a confluence of highways connecting the Northeast with the Mid-Atlantic and beyond, where millions of of consumers live.

The midstate is within 500 miles of 40 percent of the U.S. population and 60 percent of Canada’s population, said Michael J. Kushner, president of Omni Realty Group.

“The way I view it, Harrisburg’s (warehouse market) foundations are on sound footing,” Kushner said.

Among the most prominent examples of the trends can be found on and around Allen Road outside Carlisle, in Cumberland County — notably the Amazon.Com facility, but also the new 2-million-square-foot Goodman Birtcher warehouse project nearby.

“E-commerce continues to be in very high demand, and you see a lot of retailers trying to be near major metropolitan markets” with their warehouses, said Jonathan Bowser, CEO of the Cumberland Area Economic Development Corp.

But some of the hottest areas, like Allen Road, and others close to the busiest interstate exits, are fully built out or close to it.

“I think Goodman Birtcher was probably the last large tract of land” in that area, Bowser said of the Allen Road area.

That’s one of the key reasons behind changing market conditions.

“All of the easy sites have been picked off, and we are now looking at secondary and tertiary locations,” Kushner said.

In Cumberland County, for example, that has meant new development farther southwest on I-81, into the Newville and Shippensburg areas and beyond.

Even along Allen Road, however, employers have struggled to connect with warehouse workers who lived many miles away, often closer to Harrisburg where housing is more affordable and in greater supply. Some, like Amazon, rented buses to ferry staff to and from their facility, while Capital Area Transit tweaked public bus schedules to make access more convenient for others.

The development of warehouse facilities in even more distant, rural locations will only exacerbate such issues, observers say.

“This poses a bit of a problem,” said Liberty’s Alderman. “You need people to work in the buildings.”

Alderman predicts that this will lead to a two-tiered pattern of development and rents over the coming five to 10 years.

For companies with more flexibility or less to spend, locating at less expensive sites in peripheral counties such as Franklin, Schuylkill and Berks may be an option.

Those who need to be closer to the corridor’s more densely populated core, from Carlisle and York to Lebanon, “will have to pay premiums and make compromises to be in an area that has a labor force,” Alderman said.

Allentown rising

There is another region of Pennsylvania which also is densely populated and in easy reach of major East Coast markets.

The area around Allentown is rising as another significant destination for warehouse development, not least because it is closer to the critical markets of New York, New Jersey and Philadelphia than greater Harrisburg, Kushner noted.

CBRE’s first quarter report found that Central Pennsylvania — the largest submarket in the commonwealth with 162.7 million square feet of industrial real estate — had about 4 million square feet of space under construction.

The Lehigh Valley market, with 73 million square feet of industrial space, had 6.3 million square feet under construction.

That region’s assets can be a mixed blessing, however. Because the Lehigh Valley is more solidly developed than some parts of the midstate, new warehouse growth is more likely to run into intense neighborhood and community opposition there, and rents can be high.

“It’s easier to build warehouses in your area than in the Lehigh Valley,” CBRE’s Anderson said. “They’re seeing more intense pressure and pushback from residents.”

Lehigh Valley lease rates averaged $4.63 per square foot during the first quarter, CBRE found, while Central Pennsylvania averaged $4.42 per square foot.

Anderson also doesn’t see the Lehigh Valley taking warehouse tenants away from the midstate as much as growing to meet increasing demand in surrounding areas, particularly as rising land prices in neighboring New Jersey drive up the cost of maintaining supply chain operations there.

Past and future

Like Anderson, Alderman said the apparent slowdown in demand must be viewed in the context of the recession and its aftermath.

The years 2009-2012 “were very slow” for warehouse development, he said.

Alderman pegs 2014 as the year when pent-up demand and growing consumer confidence led to the start of a new supply chain construction boom.

“Now maybe a lot of that pent-up demand has been accommodated and satisfied, and I think what we’re back to is a more normal level of activity,” Alderman said.

What does the future hold?

Anderson and CBRE expect economic growth to continue, and with it consumer demand for the products shipped and stored here in the midstate, a point on which Kushner agreed.

They are not alone.

“For the Central Pennsylvania market … we are seeing continued (warehouse/distribution) construction growth and anticipate this will continue throughout the rest of 2017 and into 2018,” said Jared Jacobs, Philadelphia-based research manager for Cushman and Wakefield, another real estate firm.

In Cumberland County, Bowser said that growth continues to spread along I-81, with the Route 233 corridor around Exit 37 among the hot spots.

“We’ve seen an uptick in inquiries, people calling,” Bowser said. “The demand is still strong and the interest is still there.”

Roger DuPuis
Roger DuPuis covers Cumberland County, health care, transportation, distribution, energy and environment. Have a tip or question for him? Email him at

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