Local investment in warehouse growth fueled by consumer demand

Cris Collingwood//July 6, 2022

Local investment in warehouse growth fueled by consumer demand

Cris Collingwood//July 6, 2022


Consumer demand is driving the warehouse boom in Central Pennsylvania and Lehigh Valley with ecommerce companies leasing more than half of the space.

That demand is expected to grow, and local and regional companies are investing in the development, according to CBRE.

Other space is occupied by food and beverage distribution and manufacturing companies, according to Becky Bradley, executive director of Lehigh Valley Planning Commission. Small to medium-sized businesses make up the rest.

Bill Wolf, vice president of CBRE, which tracks industrial development across the country, including Central Pennsylvania, said Lehigh Valley’s industrial sector and the region are seeing substantial growth from the scaling up of local manufacturing and logistics facilities.

Pennsylvania’s 78 and Interstate 81 corridor in Central Pennsylvania and the Lehigh Valley added the most leased large industrial space in the country in 2020, with 8 industrial leases of 1 million square feet or more added last year, according to a CBRE report.

Additionally, the I-78/I-81 corridor was home to 11 of the 100 largest industrial leases, coming in at almost 13 million square feet — larger than any single MSA (Micropolitan Statistical Areas) or city-sized region in the United States, CBRE said.

The region is close to the ports of New York, New Jersey, Baltimore, and Philadelphia. It also has access to rail service through Norfolk Southern and CSX.

In addition, Lehigh Valley International Airport is ranked one of the top air cargo markets in the country and one of the fastest growing, according to the Airports Council International’s 2021 report.

“The majority of the facilities are general retail and wholesalers – consumer products,” Wolf said. The reason for the growth, he said, is simply consumer demand.

Bradley said most of the warehouses are built on spec.

“They are giant boxes with a lot of flexibility inside,” she said.

However, the majority are leased before construction is complete or around the time of completion.

“We can’t establish traffic (during the planning stages) because we don’t know who is going in until they get there,” she said.

Steven Deck, executive director, Tri-County Regional Planning Commission, which covers Dauphin, Cumberland, and Perry counties, agreed.

“There’s no single or even small group of developers that stand out in our region, more a broad range of commercial/industrial real estate developers,” he said.

In terms of who leases the space, “unless there is a single lease holder like FedEx, UPS, Walmart, Amazon, Proctor & Gamble, etc. we don’t know who leases the space,” Deck said. “Many of these warehouses have unknown users at the land development stage, with such decisions often made well after the planning process is complete.”

“Generally, we see 35%-40% leased before completion,” Wolf said. “Inventory is low, so space is absorbed before completion.”

According to the CBRE report, investing in warehouse and industrial space is more risk diverse. Investors are more local than foreign.

Bradley agreed, saying development is happening by companies that specialize in it. Locally, CBRE, Prologis, Lee & Associates of Eastern Pennsylvania, National Logistics and J.G. Petrucci Company Inc. are among the major players.

Space not leased by ecommerce, food and beverage or manufacturing, are leased by small or even large businesses, Bradley said.

“It could be used for storage, which there is a need for,” she said.

Many of the warehouses, Wolf said, are operated by third party operators.

“It’s always been there, but we are seeing an increase,”

He explained the third-party operators offer accounting, human resources, outsourcing and other services that help companies run more efficiently.

“We are in unprecedented times with construction delays, supply shortages and even delays in approvals,” he said. “There is more demand than supply, so costs are going up.”

Nationally, there has been a 15% increase in rents in major markets, he said. In Central Pennsylvania, rates have climbed 20%, with Lehigh Valley seeing an average of $9-$10 a square foot and Central Pennsylvania seeing $7-$7.50 per square foot.

“The further away from major transportation routes, the lower the rents will be,” Wolf said.

“All the markets are hot” and developers are stretching out to find land suitable for development,” he added.

After Lehigh Valley, developers are stretching into Berks County, Wolf said.

York County, with access to the I-83 corridor, has been strong as well. With access to Baltimore and Harrisburg, companies have pulled labor from those markets and prospered.

Lancaster and Reading, however, have suffered because of Route 222, Wolf said. “The road to nowhere does not give good access.”

While the work being done on Route 222 is ongoing, those markets are still behind in the building boom, he said.

Cold storage is an area of real growth too, he said. “These garner premium rents because they are unique buildings, especially if the leasee needs the whole building.”

Cold storage is in demand not only by food companies, but pharmaceutical and chemical companies as well, he said.

The attraction to the regional market is also due to the labor market, Wolf said.

According to the CBRE report, the regional warehouse labor force was around 190, 500 in 2020. That is expected to grow 13.4% by 2030.

While the labor market is strong, Bradley said different companies require different numbers of employees, depending on the business.

“Look at Walmart, for example,” she said. “They have two warehouses side by side. One is for small items and the other is for large ones.”

Bradley said there could be a 50% difference in the number of employees needed. The warehouse that ships small items can employ 4,000 to 5,000 people while the one that ships large items requires less hands, she said.

“These facilities are becoming more automated all the time in the efforts associated with increasing capacity without huge increases in labor costs,” Deck said.

Bradley agreed. “There is a lot more automation going on.”

Wolf said AI will play a big part in manufacturing, in warehouses and in transportation.

“These companies are more tech savvy with understanding where goods are coming from and how much they need to keep on hand,” he said. “Automation brings on more efficiency through the whole process.”

Even with inflation on the rise, Wolf said the growth of warehouse space is expected to continue because rent is a small portion of the supply chain costs when looking at the cost of transportation, goods, and payroll.