A newly built-to-suit retail listing at 1003 S. Hanover St., Carlisle, sold for $5.05 million, CBRE announced.
North Bergen, New Jersey-based BSG Management Co., a prominent developer in the mid-Atlantic states, sold the property under a long-term NNN lease to a 7-Eleven convenience store.
The CBRE team of Karly Iacono and Patti AmecAngelo led the marketing campaign, represented the seller and sourced the buyer. AmecAngelo was also the exclusive leasing agent.
“Despite the dislocation in the capital markets, buyer demand for quality net lease assets remains strong,” Iacono said in a release. “We were pleased to provide a competitive exit for our client while securing the buyer a solid long-term hold consistent with their investment strategy.”
Offering direct highway access to Interstate 81, the property is an out-parcel to a Home Depot, as well as close to many other major national retailers including a Walmart Supercenter, T.J. Maxx, Tractor Supply Co., Chick-Fil-A, Panera Bread, Cracker Barrel, Chili’s Grill and Bar and CVS.
A wholesale distributor of luxury bathroom products has moved from Secaucus, New Jersey to a 70,000-square-foot industrial space at 145 Morgan Lane in York.
CBRE said it completed the lease for Lexora Home, which distributes such products as faucets, cabinets, vanities, mirrors, bathtubs and other accessories.
The move is the company’s fourth expansion in the past five years.
“We are thrilled to be relocating our operations to 145 Morgan Lane, a larger facility that will help us to best serve our customers,” said Andrey Bogan, CEO at Lexora Home. “We are extremely bullish on the future of our company as we continue to grow and expand.”
The facility is located just one mile from the North and South interchange of I-83. The property features eight docks (with an ability to expand to 10), two drive-in doors, 30-foot clear height and ESFR sprinkler system.
The CBRE team of Nicholas Klacik, Kevin Dudley, Chad Hillyer, Kate Granahan, John La Prise, and Sean Bleiler represented Lexora Home in the lease negotiations.
Jason Turnbull of Rock Commercial Real Estate acted on behalf of ownership.
The use of automation in warehouses won’t impact the workforce, at least for now.
“It used to be that automation would reduce labor,” said Kevvin Miller, director, Americas Consulting Supply Chain, CBRE. “But there are other parameters now, like scalability and flexibility.”
Shawn Furman, Advanced Manufacturing Technology Strategy manager, Manufacturers Resource Center in Allentown, agreed.
“The use of automation is or should be applied to a problem that a company needs to solve,” Furman said. “Most business are going to have a solid plan in place before investing, and that plan will have cost savings associated with it.”
The cost savings can include improving ergonomics, improved accuracy in order fulfillment, or reallocation or reduction of workforce.
“I listed reduction in workforce last because if you can’t find labor, you’re going to hang on to the staff you have and repurpose the workers displaced by automation into another area of your business,” he said. “It doesn’t make sense to layoff trained workers you have in hand, because you are still going to need a team to manage and maintain the automation.”
Miller said the use of automation increases the technical skills needed and most companies train their workers for the tasks. That can result in higher wages.
Only about 25% to 30% of warehouses in Lehigh Valley use robotics, Miller said. Most still use conveyors which requires more labor.
“With the labor shortage, that has become an issue,” he said.
When building a warehouse, Miller said, the companies go where labor is most available.
“Everyone has seen the challenges since COVID and that if forcing some companies to automate,” he said. “Labor is a tough thing.”
The increased need for automation has come from the increased demand for same day, next day and expedited delivery, Miller said.
“Companies are in business to stay in business, which means staying competitive by making wise decisions when faced with the challenges of labor shortages,” Furman said. “Many companies practice continuous improvement to identify waste streams (materials, time, labor) which drives actions to reduce or eliminate the waste identified.”
Automation is just one of many options to help a company tackle waste, but Furman said it’s often difficult to successfully implement without taking steps beforehand to really understand the problem.
“You can’t throw automation at a problem and expect that problem to magically disappear,” he said.
Miller said companies moving to automated systems are those who deliver orders that are less than a pallet. When entire pallets are ordered, a conveyor system will work. But when orders are for partial pallets or even one item, a robotic system is needed.
Even with a robot, Miller said human workers are needed because even though a robot can be programmed to recognize a product by reading a barcode, pallets can shift which would make the product difficult for the robot to identify.
“Robotics are cost effective for moving some items, but more costly for others,” he said. “A person will often have to pick items and hand them to the robots which take them to the packing areas.”
Furman said, too, if there’s a large warehouse requiring workers to walk long distances to manually pick components off shelves, software coupled with autonomous robots could be used to optimize paths of travel for workers.
“Other benefits include ergonomics where the neck and back are strained from driving a fork truck all day,” he said.
People are also needed to maintain the robotics, Miller, whose company creates training materials for robotic systems, said.
“It takes six to 10 months to train people and get systems ramped up,” he said. “They need to learn all the systems involved.”
Miller said automation will eventually reduce the labor force needed. With the demand for on-time deliveries, he sees automation growing to 75%.
“But if you think about how technology has changed over the last 10 years and we are still only at 25%, you can see it will take time,” he said. “So, it isn’t displacing labor now, not from what I’m seeing.”
“I think the future is bright as more automation is utilized,” Furman said. “The workforce will have the opportunity to take a step away from having to spend 8 to 12-hour shifts on the shop floor doing the same task(s) all day every day. Automation will lead to jobs that will be more meaningful and rewarding in the workforce, and that’s a great place to be heading.”
Following a slowdown in the fourth quarter of 2022, the I-78/I-81 corridor saw an uptick in leasing activity for the first quarter of 2023.
Commercial Real Estate firm CBRE put out its quarterly report on activity along the quarter, which said that leasing activity along the corridor topped 6 million square feet while overall net absorption tallied more than 7 million square feet of occupancy growth, the fourth highest quarter on record.
Still Bill Wolf, vice chairman of CBRE, said the region’s commercial real estate market appears to be normalizing.
“Overall demand is still strong, but it’s come down to more pre-pandemic levels,” he said.
Rather than rushing to beef up their supply chain, Wolf said many companies are looking to see where sales are heading before making investments in warehousing, logistics or manufacturing, which is lowering the demand for space.
The Lehigh Valley trailed Central Pennsylvania and Northeastern Pennsylvania with a lower net absorption of commercial real estate space.
In fact, Northeast Pa. claimed most of the positive absorption during the first quarter of 2023, tallying 4.3 million square feet.
Meanwhile, Central Pa. and the Lehigh Valley posted significantly less absorption than in recent quarters as supply remained severely limited, especially within the 1 million sq. ft or greater range, where only two options were available in existing buildings.
Three leases greater than 1 million square feet were signed during the first quarter of 2023, accounting for half of all leasing activity.
While the numbers may be down, Wolf said, “It’s a good thing,” and such a normalization is simply part of the cycle and helps keep the market under control.
That doesn’t mean rent prices aren’t continuing to skyrocket.
While still a relative bargain compared to other surrounding major metropolitan areas, rents continue to climb in the region.
The average rent for all classes across the corridor is close to $8 per square foot, the highest ever.
For the most in-demand properties close to major transportation arteries, Class A industrial space is leasing for closer to $10 to $15 per square foot, Wolf said.
While demand for space is down, construction of new facilities is also down along the corridor, which will keep the market competitive.
Construction starts have stalled as a combination of rising construction and debt costs eroded returns on rent assumptions.
Also, there has been a pushback from municipalities against warehouse development, further stalling efforts to add stock to the supply-restricted industrial market throughout the corridor.
For a third consecutive quarter, Wolf said, starts totaled below 2 million square feet, which is far less than the average 5.4 million square feet that broke ground since the start of the pandemic.
He noted that a year ago, active construction projects totaled more than 40 million square feet, but has since dropped to 16.8 million square feet.
As a result, Wolf said, CBRE is predicting that the I78/I-81 corridor will remain supply constrained during the remaining portion of 2023, which will further drive up rent prices.
In 2022, two of the nation’s 50 priciest industrial property transactions were in the vicinity of the state’s capital. That data comes courtesy of the newest report from CommercialSearch.
Harrisburg’s $193 million portfolio sale of the Capital Logistics Center ranked 16th among the nation’s most expensive industrial deals from last year. The 1,288,690-square-foot property, consisting of three buildings, was sold May 18 by Link Logistics to CBRE Investment Management for roughly $150 per square foot.
Also ranking among 2022’s priciest U.S. industrial transactions was the $167 million sale of the 3000 State Drive building. The 970,000-square-foot property – ranked 24th on the list – was sold March 28 for $172 per square foot by DHL Supply Chain to CPUS LEBANON LP.
Pennsylvania accounts for the second-largest group of deals by state, with seven of the top 50 sales. California accounts for the largest group, with 16.
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.
Coming off a record-breaking year in 2021, the I-78/I-81 corridor is continuing to experience record low vacancy, record high absorption and record high rents in the commercial real estate market, as well as a construction industry that’s struggling to keep up with demand.
According to the latest report from CBRE, the vacancy rate in the region was a low 3.8%, while net absorption was 4.9 million square feet.
Average rent has reached $5.94 per square for industrial space and there is currently 33.5 million in new construction in the pipeline.
The average rent along the corridor is up 3% over last quarter and is expected to continue to climb.
In the coveted Lehigh Valley, average asking rents rose to $7.07 per sq. ft. In Central Pennesylvania and Northeast Pennsylvania, average asking rents landed at $5.32 and $5.30 per square foot, respectively. In the particularly tight Class A warehouse subset, overall average asking rents increased to $6.48 per square foot, indicative of the strong competition for modern logistics facilities.
Vincent Ranalli, executive vice president with CBRE said not only is the vacancy rate at a record low, but 40% of all of the new construction in the pipeline is already pre-leased.
He said that has developers very bullish and many are moving forward on new projects much faster than they would have in the past.
He pointed to one project in East Allentown Township, just north of the Lehigh Valley International Airport.
The development calls for five buildings and the first two buildings, which are under construction, have already been leased.
Because of the expected continued demand, the developer is looking to break ground on the next Three buildings this spring.
“Looking back at the first quarter of 2021, we actually have more demand than we had at that time. We have more tenants looking for space and by every metric we’re busier this year than a year ago,” Ranalli said. “Last year was an historic year in the Lehigh Valley so we seem to be on course for another banner year.
But it’s actually Central Pennsylvania that is currently leading the pack in new construction, a fact that Ranalli attributes mostly to the availability of space compared to the Lehigh Valley.
“Lehigh Valley is just a little bit harder to develop in because there’s less sites,” he said. “What you have in Central Pennsylvania is that there’s less barriers to entry.”
He said there are currently 12.6 million square feet of industrial space under construction currently in Central Pennsylvania as compared to 11 million square feet in the Lehigh Valley.
“Landlords are still very confident and are willing to go forward on speculative projects,” he said.
He noted there is also strong diversity in the tenants of these buildings, with third-party logistics, ecommerce, food & beverage and consumer goods leading the tenant pool along the corridor.
And while construction is up, Ranalli said it still isn’t quite keeping up with demand and CBRE expects the tight market to continue through at least the rest of the year.
The United States had a record year for large warehouses in 2021 and the I-78/I-81 corridor, running through the Lehigh Valley, Central Pennsylvania and Northeastern Pennsylvania ranked second in the country for these large transactions.
According to CBRE, driven by a rebounding economy and strong e-commerce sales, companies committed to 57 warehouse leases of 1 million square feet or more across the country in 2021. That’s a 19% increase.
Chicago had the greatest number of the top 100 transactions with 12. In second place, the I-78/81 corridor followed with 11, however it did record the most transacted square feet at 12.4 million.
“Each year, the PA I-78/I-81 corridor is among the leaders of 1 million square feet or larger transactions,” said CBRE Executive Vice President Vincent Ranalli. “Tenants with needs of 1 million square feet or more seek out our region due to availability of large sites to accommodate these mega deals, competitive lease rates, labor availability and an overall business-friendly environment.”
The industry sector claiming the largest share of those leases is general retail and wholesale, which recorded 44 transactions at 46.1 million square feet.
Ranalli said this was a significant jump from 2020 when that sector recorded 32 transactions of 35 million square feet.
E-commerce-only occupiers, which was the leader in 2020, were second at 21 deals of 27 million square feet, followed by food and beverage users at 15 deals at 14.2 million square feet.
Recent reports of such supply chain problems as the 80,000 cargo shipping containers piled up at the Port of Savannah and ships waiting up to nine days to offload their cargo, illustrate why the commercial real estate market is booming in Eastern Pennsylvania along the I-78/I-81 corridor.
Retailers are having trouble getting their goods delivered in a timely manner and that can have a strong negative impact on business if they fail to have the inventory they need for high-demand seasons such as Back-to-School or the Christmas holidays.
“If retailers can’t hit that, there’s going to be major implications,” said Sean Bleiler, senior vice president for CBRE. “It’s not just about a kid not getting the backpack they want. Their stock is going to get hit if they can’t get theses goods off the ship and into their stores.”
That’s driving these companies to want to store their goods closer to home, and it’s having a continued major impact on the commercial real estate market in the region.
Bleiler said the I-78/I-81 corridor saw record activity in the third quarter, surpassing the record numbers of the first and second quarters of the year. Most of that – especially in the Lehigh Valley – was driven by third-party logistics providers and ecommerce companies looking to house their products and distribution in the dense population region of the Northeast.
According to the most recent CBRE report on the corridor, there was a mere 4.6% vacancy rate with 25 million square feet of new construction in the pipeline.
“A lot of that is already pre-leased so net absorption is actually outpacing construction,” he said.
In the Lehigh Valley alone there is 9 million square feet of industrial buildings under construction with a 4.6% vacancy rate.
The Central Pennsylvania region is slightly tighter. It has 7.7 million square feet of industrial space under construction and a 4.4% vacancy rate.
The demand is driving rent for commercial properties to record levels across the board.
“The Lehigh Valley is the most expensive on a square foot basis because of its proximity to the New Jersey and New York markets,” he said.
However, he said as prime properties become rarer and more expensive, the market is being driven westward into Central Pennsylvania and beyond where there is the potential for more developable land.
“Five years ago, building 30 or 50 miles west may not have made a lot of sense, but now that’s making sense,” he said.
The report shows current commercial rents are averaging $5.60 per square foot., a year-over-year increase of nearly 20%. It added that the lack of availability, particularly for class A spaces, has led to tenants entering competitive bidding wars.
As a result, Class A base rents written into leases averaged $6.13 per square foot during the third quarter, a 2% premium over average Class A asking rates.
With supply chain problems expected to continue, and logistics changes brought about by the COVID-19 pandemic, Bleiler said CBRE sees no end in sight to increasing demand for and cost of commercial real estate along the corridor.
“We’ll see rates continue to rise quarter over quarter and we’ll continue to see record rates and construction isn’t going to be able to keep up,” he said. “We think it will continue for the foreseeable future at this point.”
Rent prices for logistics facilities in the Northeast U.S. Corridor are skyrocketing, but that may be good news for developers and property managers in the Lehigh Valley and Central Pennsylvania.
A report by CBRE shows that rents for light industrial properties rose nearly 30% during the first half of 2021 compared to the first half of 2019, before the COVID-19 pandemic drove the demand for such properties.
According to Vince Ranalli, executive vice president for CBRE, rents in the Lehigh Valley and Central Pennsylvania are averaging around $7 per square foot for Class A industrial space. But, that’s still much lower than other regions along the corridor, making sites in the Lehigh Valley and Central Pennsylvania more attractive.
The Pennsylvania I-78/I-81 corridor, which encompasses the Lehigh Valley, Central Pennsylvania and Northeastern Pennsylvania has had an average Class A industrial rent increase of 11.8%, which while significant, is still drastically lower than Central New Jersey, which has seen rents increase by 49.32%, the Philadelphia area market, which has risen by $47.31 and Northern New Jersey, which has seen a 31.01% increase in rents prices.
“The Lehigh Valley is still a bargain compared to other areas,” Ranalli said. “We see tenants all of the time that are priced out of the other markets and want to be in the Lehigh Valley.”
Meanwhile the demand for such properties is continuing at a staggering rate.
Vacancies within the Northeast Corridor dropped more than 70 basis points during the first six months of 2021, settling at a record low of 3.3%
“That’s historic,” Ranalli said. “We’ve never seen that before.”
But demand is only part of the reason that rents are rising so drastically.
Costs for developers building the properties are also on the rise. The cost of materials has skyrocketed. Steel, for example, is costing more than three times what it did last year.
Labor costs have also gone up dramatically, all of which go towards the cost of building these industrial facilities and contribute to higher rents.
But the demand for Class A, modern industrial space isn’t slowing down and developers are leasing out properties faster than they can build them.
“We’re seeing a lot of pre-leasing, which is something we’ve never seen before,” Ranalli said. “These buildings are being leased while the walls are still going up.”
The biggest challenge in the Lehigh Valley and Central Pennsylvania right now is a lack of property to develop.
“All of the easy sites are gone. I’ve said it before, developers are having to get creative to find new sites to develop,” he said.
And it’s a trend he said he doesn’t see slowing down anytime soon, so those looking to lease light industrial properties should consider the higher prices as the new standard of what to expect.
CBRE has named Rija Beares to lead its Greater Philadelphia Region, which includes both the Lehigh Valley and Central Pennsylvania in addition to downtown and suburban Philadelphia, Delaware and Southern New Jersey.
In her new role as advisory services market leader, Beares will be responsible for driving the company’s growth strategy in the region and leading the company’s advisory services business including leasing, sales, valuations, debt and structured finance and property management.
“After a thorough review process, Rija emerged as the clear choice to take the Philadelphia business into the future,” said Michael Caffey, regional president for CBRE’s North Region. “Not only is she highly regarded as a leasing professional by her peers and clients, she is also well respected for her leadership qualities, work ethic and her ability to manage complex situations with aplomb.”
Beares joined CBRE in 2002, advising institutional and entrepreneurial owners in structuring lease transactions and developing lease-up strategies.
In 2010 she began focusing exclusively on representing corporate occupiers of real estate. She also served as the leader of CBRE’s technology and Media practice for the Greater Philadelphia region.
A Schuylkill County logistics center has just been sold for $25.7 million.
CBRE reports that it arranged the sale of the nearly 2.4 million-square-foot Rausch Creek Logistics Center in Valley View to California-based Panattoni Development Co.
CBRE represented the seller, Tremont FT LLC, which is an affiliate of Viridian Partners.
“Located in the heart of Pennsylvania’s I-78/I-81 Industrial Corridor, Rausch Creek Logistics Center will offer tenants superb access to major industrial markets in the Northeast,” said Michael Hess, an agent with CBRE involved in the sale. “Panattoni Development specializes in build-to-suit and speculative industrial development. With limited inventory in Central Pennsylvania and the Lehigh Valley, and with a 75% LERTA tax abatement available, this state-of-the-art industrial park will attract an array of prominent industrial users.”
The logistics center sits immediately off of Exit 107 of I-81, and just 18 miles from I-78.
It will consist of Building 1, which will be 1,346,755 square feet.
Speculative construction is expected to begin soon with delivery in the third quarter of 2022.
Building 2, which is 1,040,540 square feet, will be pad ready to begin speculative construction in early 2022.
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