Greater Philadelphia Industrial MarketView
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CBRE Global Research and Consulting Greater Philadelphia Industrial MarketView Q4 2013 *Arrows indicate change from previous period. 95 100 105 110 115 120 250,000 270,000 290,000 310,000 330,000 350,000 370,000 390,000 2010 2011 2012 2013 Tons and Ton-Miles $ Millions Retail Trade Freight Transporation Service Source: U.S. Department of Commerce and U.S. Department of Transporation Logistics are currently in a period of immense technological change. Retailers are currently exploring diverse methods of distributing their products to consumers; an effort that has brought about a varied set of challenges that the supply chain field has not recently faced. Companies are relying on existing strengths as they develop e-commerce strategies. For example, Wal-Mart Stores, Inc. is looking to further develop their in store pickup model, while locally adding facilities, into what it hopes will provide a fulfillment network capable of competing in the marketplace. The industrial market observed a surge in demand for Class A industrial properties. While Class A properties currently have sizable vacancies, they are still selling and reaping profits for developers, demonstrating the level of confidence that investors have in Chart 1: Retail Trade vs. Freight Transportation Service the market. For example, the industrial buildings that encompass 1.5 million sq. ft. at the Forest Park Corporate Center in West Deptford, NJ were approximately 80% occupied when they sold for $72.5 million. Additionally, the 700,000 sq. ft. warehouse distribution facility at 2 Ames Drive in the Mountain Creek Distribution Center in Carlisle, PA was completely vacant when it sold for $37 million. The region is currently a user sales market due to properties being priced for the buyer. Additionally, due diligence timing has been going down; currently average timing for due diligence is under two months, which is a result of buyers wanting to make transactional decisions in a shorter amount of time. As timing continues to be a major theme in the industrial market, logistics will ultimately be what separates not only leasing activity across the various submarkets, but also the business decisions of the major national tenants that occupy these buildings. Hot Topics • Wal-Mart Stores, Inc. leased two industrial buildings in Bethlehem, PA totaling 2.4 million sq. ft. • Prudential Industrial Properties sold the 181,000 sq. ft. distribution warehouse at 7 Easterbrook Lane in Cherry Hill, NJ to Covington Group for $2.9 million. • The Fox Group leased 135,000 sq. ft. at 2750 Morris Road in North Wales, PA. • Cabot Properties sold an industrial portfolio of 177 buildings to Liberty Property Trust, of which 263,000 sq. ft. were in Newark, DE. • Honeywell International, Inc. renewed 88,000 sq. ft. of flex space in Fort Washington, PA. Quick Stats Q4 2013 QoQ YoY Total Net Absorption: 2.98M SF i h Total Vacancy Rates: 10.7% i i Asking Lease Rates: $3.82 NNN i i Development Pipeline: 4.71M SF h h LOGISTICS, LOGISTICS, LOGISTICS: THE GREATER PHILADELPHIA INDUSTRIAL MARKET SEES CONTINUED SUCCESS DUE TO FAVORABLE NORTHEAST LOCATION © 2014, CBRE, Inc. MSA Unemployment 7.6% QoQ Consumer Price Index 0.1% MoM Productivity Index 1.9% QoQ US Exports 1.6% YoY US Imports 1.5% YoY
Transcript of Greater Philadelphia Industrial MarketView
CBRE Global Research and Consulting
Greater Philadelphia IndustrialMarketView Q4 2013
*Arrows indicate change from previous period.
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Retail Trade vs Freight Transporation Service
Retail Trade Freight Transporation ServiceSource: U.S. Department of Commerce and U.S. Department of Transporation
Logistics are currently in a period of immense technological change. Retailers are currently exploring diverse methods of distributing their products to consumers; an effort that has brought about a varied set of challenges that the supply chain field has not recently faced. Companies are relying on existing strengths as they develop e-commerce strategies. For example, Wal-Mart Stores, Inc. is looking to further develop their in store pickup model, while locally adding facilities, into what it hopes will provide a fulfillment network capable of competing in the marketplace.
The industrial market observed a surge in demand for Class A industrial properties. While Class A properties currently have sizable vacancies, they are still selling and reaping profits for developers, demonstrating the level of confidence that investors have in
Chart 1: Retail Trade vs. Freight Transportation Service
the market. For example, the industrial buildings that encompass 1.5 million sq. ft. at the Forest Park Corporate Center in West Deptford, NJ were approximately 80% occupied when they sold for $72.5 million. Additionally, the 700,000 sq. ft. warehouse distribution facility at 2 Ames Drive in the Mountain Creek Distribution Center in Carlisle, PA was completely vacant when it sold for $37 million.
The region is currently a user sales market due to properties being priced for the buyer. Additionally, due diligence timing has been going down; currently average timing for due diligence is under two months, which is a result of buyers wanting to make transactional decisions in a shorter amount of time. As timing continues to be a major theme in the industrial market, logistics will ultimately be what separates not only leasing activity across the various submarkets, but also the business decisions of the major national tenants that occupy these buildings.
Hot Topics
• Wal-Mart Stores, Inc. leased two industrial buildings in Bethlehem, PA totaling 2.4 million sq. ft.
• Prudential Industrial Properties sold the 181,000 sq. ft. distribution warehouse at 7 Easterbrook Lane in Cherry Hill, NJ to Covington Group for $2.9 million.
• The Fox Group leased 135,000 sq. ft. at 2750 Morris Road in North Wales, PA.
• Cabot Properties sold an industrial portfolio of 177 buildings to Liberty Property Trust, of which 263,000 sq. ft. were in Newark, DE.
• Honeywell International, Inc. renewed 88,000 sq. ft. of flex space in Fort Washington, PA.
Quick Stats
Q4 2013 QoQ YoY
Total Net Absorption: 2.98M SF i h
Total Vacancy Rates: 10.7% i i
Asking Lease Rates: $3.82 NNN i i
Development Pipeline: 4.71M SF h h
LOGISTICS, LOGISTICS, LOGISTICS: THE GREATER PHILADELPHIA INDUSTRIAL MARKET SEES CONTINUED SUCCESS DUE TO FAVORABLE NORTHEAST LOCATION
© 2014, CBRE, Inc.
MSA Unemployment 7.6% QoQ
Consumer Price Index0.1% MoM
Productivity Index1.9% QoQ
US Exports1.6% YoY
US Imports1.5% YoY
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Chart 2 & 3: Market Statistics
Submarket Inventory
Total Vacancy
Rate
Total Availability
Rate CompletionsUnder
Construction
2013 YTD TOTAL NET
ABSORPTION(SF)
AVG. Minimum ASKING
LEASE RATE($NNN/PSF/YR)
Bucks County, PA 27,619,195 8.9% 9.1% 0 0 285,653 $4.09
Burlington County, NJ 21,422,027 18.4% 18.4% 0 0 (841,973) $4.33
Camden County, NJ 15,459,223 11.0% 11.0% 0 0 1,171,932 $2.94
Central PA** 151,688,111 10.7% 11.1% 1,108,000 0 1,035,743 $3.57
Chester County PA 12,081,953 5.6% 5.6% 0 0 (300,277) $6.31
Delaware County, PA 10,520,762 12.0% 12.4% 0 0 (249,209) $3.64
Gloucester County, NJ 15,557,496 12.4% 13.8% 0 190,000 976,854 $3.92
Lehigh Valley, PA* 41,202,415 4.0% 4.7% 0 3,957,288 2,141,989 $4.02
Montgomery County, PA 31,086,387 6.8% 8.9% 0 0 (313,541) $4.68
New Castle County, DE 13,034,249 11.9% 12.9% 0 0 (143,632) $4.56
Northeast PA*** 35,559,482 19.3% 19.3% 0 566,256 (183,984) $3.66
Philadelphia County, PA 28,982,282 9.6% 11.2% 0 0 403,727 $3.62
TOTAL 404,213,582 10.7% 11.3% 1,108,000 4,713,544 3,983,282 $3.82
Submarket Inventory
Total Vacancy
Rate
Total Availability
Rate CompletionsUnder
Construction
2013 YTD TOTAL NET
ABSORPTION(SF)
AVG. Minimum ASKING
LEASE RATE($NNN/PSF/YR)
Bucks County, PA 25,241,341 9.1% 9.2% 159,300 70,000 460,782 $6.42
Burlington County, NJ 15,583,479 16.9% 17.6% 0 0 474,309 $5.33
Camden County, NJ 17,113,334 13.3% 13.4% 0 0 663,240 $5.09
Central PA** 38,814,366 8.2% 8.5% 0 0 618,751 $4.66
Chester County PA 13,553,655 9.8% 10.3% 0 0 339,104 $8.18
Delaware County, PA 10,701,939 11.7% 12.0% 31,920 0 216,860 $7.22
Gloucester County, NJ 10,005,126 15.6% 16.1% 0 0 303,205 $5.33
Lehigh Valley, PA* 19,768,595 8.2% 8.3% 0 0 497,086 $5.65
Montgomery County, PA 24,069,697 11.4% 11.4% 0 0 670,491 $6.79
New Castle County, DE 16,536,481 12.5% 12.9% 0 0 466,024 $5.31
Northeast PA*** 9,110,996 8.7% 8.7% 0 0 739,952 $3.57
Philadelphia County, PA 21,629,457 8.6% 8.9% 0 0 512,407 $5.36
TOTAL 222,128,466 10.6% 10.9% 191,220 70,000 5,962,211 $5.71
100,000 SF AND LARGER
10,000 TO 100,000 SF
* Lehigh and Northampton Counties** Cumberland, Dauphin, Franklin, Lancaster, Lebanon and York Counties*** Carbon, Lackawanna, Luzerne, Monroe and Schuylkill Counties
Source: CBRE Research, Q4 2013.
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Total Vacancy Rate
INDUSTRIAL ABSORPTION The region experienced another quarter of positive total net absorption of over 2.9 million sq. ft. The Lehigh Valley continued its positive trend, leading the way with the most significant amount of positive absorption, which totaled over 1.5 million sq. ft. Bucks County, PA also saw a large amount of absorption with over 260,000 sq. ft. Some of the significant transactions that positively impacted the overall absorption numbers were Wal-Mart Stores, Inc. occupying 1.2 million sq. ft. at 2785 Commerce Center Blvd in Bethlehem, PA, and Harley-Davidson, Inc. occupying 438,000 sq. ft. at 601 Memory Lane in York, PA. Although “Big Box” activity continues to shine in the region, all sectors of the industrial real estate market have gained significant traction and are effectively maintaining the positive absorption.
INDUSTRIAL VACANCY For the third quarter in a row, the region experienced declining total vacancy rates dropping 30 basis points from 11.0% to 10.7%. Camden and Gloucester County, NJ experienced significant declines in vacancy rates by 350 and 360 basis points, respectively. The Lehigh Valley continued to improve as the vacancy rate in this submarket had the largest decrease quarter-over-quarter from 7.7% to 4.0%. As the Lehigh Valley continues to see a diminishing supply of viable space for many of the tenants in the market, the demand will trickle over into other submarkets such as Northeast PA and Central PA, where properties are beginning to come back to the market. These availabilities are present, because tenants are currently looking for quality space or potential build-to-suit opportunities.
INDUSTRIAL LEASE RATES The average asking lease rate decreased from $3.84 NNN to $3.82 NNN. The submarkets with the lowest vacancy rates continue to command the highest asking lease rates; however, the market continues to correct itself as vacancy rates decrease in the submarkets with lower asking rates. This is evident in Camden County, NJ, which saw a large decrease in vacancy coupled with the lowest asking rate of $2.94 NNN this quarter. Tenants are seizing the opportunity to lease and occupy space in various markets such as Camden, NJ that have low rental rates but are still viable markets for their business activity. Lease rates saw the largest decline in Chester County, PA where the asking rate fell $0.44 cents from $6.75 to $6.31; this drop is attributed to landlords wanting to stay competitive with the surrounding markets where other options exist.
INDUSTRIAL DEVELOPMENT PIPELINE Construction activity increased despite two large properties delivering in Central PA. Currently the development pipeline consists of over 4.7 million sq. ft., mostly located in Lehigh Valley, PA. An additional speculative project hit the market, with Griffin Construction building a 302,000 sq. ft. distribution warehouse at the Lehigh Valley Tradeport. Wal-Mart Stores, Inc. commenced their 1.2 million sq. ft. build-to-suit in Bethlehem, PA. Northeast PA continues to see activity with Mericle Commercial Real Estate Services starting construction on two 200,000 sq. ft. buildings in Luzerne County, PA. As the economy continues its positive progression, so does the industrial development pipeline in the Greater Philadelphia region.
Chart 4: Total Net Absorption (‘000’s sq. ft.)
Chart 5: Total Vacancy (%)
Chart 6: Average Direct Asking Lease Rate (NNN)
Chart 7: Development Pipeline (‘000’s sq. ft.)
Source: CBRE Research, Q4 2013.
Source: CBRE Research, Q4 2013.
Source: CBRE Research, Q4 2013.
Source: CBRE Research, Q4 2013.
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© 2014, CBRE, Inc.
Andrew Friedman Researcher Greater Philadelphia Research CBRE Two Liberty Place 50 S. 16th Street, Suite 3000 Philadelphia, PA 19102 t: +1 215 561 8900 e: [email protected]
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Michael L. Compton Research Manager Greater Philadelphia Research CBRE Two Liberty Place 50 S. 16th Street, Suite 3000 Philadelphia, PA 19102 t: +1 215 561 8900 e: [email protected]
ContACtS
GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.
DISCLAIMER
© Copyright 2013 CBRE Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not
doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its
accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved
and cannot be reproduced without prior written permission of the CBRE Global Chief Economist.
For more information about this Local MarketView, please contact:
Andrew Green Researcher Greater Philadelphia Research CBRE 1200 Liberty Ridge Drive Suite 320 Wayne, PA 19087 t: +1 610 251 0820 e: [email protected]
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