Construction boom continues for Light Industrial properties along I-78/I-81 corridor

Stacy Wescoe//July 26, 2021

Construction boom continues for Light Industrial properties along I-78/I-81 corridor

Stacy Wescoe//July 26, 2021

The overwhelming demand for light industrial and warehousing space along the I-78/I-81 corridor should last through the end of the year and likely beyond, said Vince Ranalli, executive vice president for CBRE.

The company has released its latest report on development in the corridor, which shows available space running out, new development on the upswing and an overall hike in leasing costs.

“We’re ahead of where we expected,” Ranalli said. “I don’t think anyone could have imaged since the pandemic how much space we would absorb.”

The corridor had a record-setting 7.9 million square feet of absorption in the second quarter of 2021 alone.

“That’s nearly 8 million square feet of space in one quarter. I remember when 8 million square feet was a good year,” he said. “It’s unprecedented and we see no signs of a slowdown.”

Overall vacancy fell to 5.8%, further underscoring the record demand for space.

To meet the demand, developers are building new facilities as fast as they can.

In 2020 5 million square feet of new construction was completed.  About 9 million square feet of new light industrial construction is in the pipeline.

The Northeast Pennsylvania and Lehigh Valley markets posted the highest occupancy gains in the second quarter, accounting for most of the net absorption.

In the Lehigh Valley, much of the occupancy growth was from the 3.6 million square feet of construction deliveries as very little existing Class A space is available within that market.

While the bulk of the construction remains in the Central Pennsylvania and Lehigh Valley markets, because of the lack of available properties in the Lehigh Valley and Central Pennsylvania area, the report shows gains in the Northeastern Pennsylvania region.

Northeastern Pennsylvania now represents 16.1% of the overall development in the corridor with 3.1 million square feet under construction.


Sticker Shock

Available land is the one thing slowing down development.

For those who do want the access in the Lehigh Valley, Ranalli said, they have to get creative.

Companies looking to build out their network of warehouse and logistics space are turning to brownfields sites, where they are knocking down old buildings and constructing new facilities.

Ranalli gave Bridge Point 78 in Phillipsburg, New Jersey as an example. The 3.85-million-square-foot industrial complex was created on the site of the former Ingersoll Rand.

In other cases, developers are knocking down old office buildings or shopping centers to build logistics facilities because of the changing market due to the shifting consumer preference towards ecommerce.

The demand for space, coupled with drastically rising construction costs has led rents to record highs, Ranalli said.

“Some tenants are really getting sticker shock,” he said.

According to the report, Northampton County has the highest average rent for industrial space at an average of $6.72 per square foot. Lehigh County is next with average leasing rates of $6.21.

By comparison the other regions are less expensive. The average rent for industrial space in York County was $5.21 and Dauphin County had an average lease rate of $5.46.

“In some cases we’re seeing Class A space at above $7 per square foot. It’s really unprecedented,” Ranalli said.

The corridor is still a bargain, rent wise for companies looking for light industrial properties in the Northeast when compared to North and Central New Jersey, so Ranalli said he expects rents to remain high for the foreseeable future