Research
PHILADELPHIA
1Q16 INDUSTRIAL MARKET
The Expansion Cycle
Continues at a Prudent
Pace
Market fundamentals strengthened across the Greater Philadelphia
region in the first quarter of 2016, as tenant demand grew by nearly 2.4million-square-feet. All types of industrial space witnessed positive
absorption, although the net quarterly gains were fueled overwhelmingly
by the warehouse/distribution sector. Overall vacancy decreased by 30
basis points from the end of 2015, to settle at 8.5%, an eight-year low for
the market. All of the submarkets in the Philadelphia region experienced
noteworthy growth in first-quarter 2016, with Southeastern Pennsylvania
and Southern New Jersey each contributing over a million square feet in
absorption. Propelled by Lancaster County’s robust addition of
approximately 500,000-square-feet of tenancy by companies such as
Lancaster Fine Foods and US Pipe, Southeastern Pennsylvania charted
approximately 1.2 million-square-feet of net absorption over the past 90
days. As a result, vacancy dropped 20 basis points quarter-over-quarter,
to a record low of 7.6%. Notable occupancies in the market included Cott
Beverages, which moved into its newly-constructed 247,452-square-foot
built-to-suit at 103 Commerce Drive in Delaware County, and Wayne
Moving & Storage, which occupied the 127,600-square-foot building at
303 Eagleview Boulevard in Chester County.
Southern New Jersey tallied 1.1 million-square-feet of demand growth
over the past three months, trimming vacancy 30 basis points to 8.7%.
American Hotel Register accounted for a significant portion of the
tenancy gains, upon occupying the 477,736-square-foot speculative
building at 1620 River Road that delivered this quarter. New Castle
County also performed well, as third-party logistics tenants drove 99,190square-feet of positive absorption, helping to compress the vacancy rate
to 20.0%.
Current Conditions
• Vacancy falls to record lows across the Greater
Philadelphia region.
• Demand outpaces supply additions, as speculative
construction delivers already leased.
• Average rental rates increased quarter-over-quarter to
$4.92/SF.
Market Analysis
Asking Rent and Vacancy
$6.00
14%
$5.50
12%
$5.00
10%
$4.50
8%
$4.00
6%
$3.50
4%
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
Average Asking Rent (Price/SF)
1Q15
1Q16
Vacancy (%)
Net Absorption
Square Feet, Millions
6
4
2
0
-2
Overall asking rents in Greater Philadelphia increased incrementally by
$0.04/SF quarter-over-quarter to $4.92/SF. In particular, the R&D/flex
sector experienced moderate growth in the first quarter. That sector has
seen four consecutive quarters of demand charted in the six-figures,
which has led landlords to justify modest pricing increases.
Warehouse/distribution rates essentially moved sideways, a result of
greater leasing velocity for premium space, which removes the higherpriced inventory tier from the available supply.
-4
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
1Q16
Market Summary
Current
Quarter
Prior
Quarter
Total Inventory
497MSF
494MSF
491MSF

New Demand Drivers on the Horizon
Vacancy Rate
8.5%
8.8%
8.9%

First-quarter 2016 brought the unfortunate news of layoffs in the local
manufacturing sector, which has experienced retractions in space use
across the region as of late. Two manufacturers announced significant
layoffs this quarter. Royal Ingredients, located in Gloucester County, will
cut its workforce by 80 employees, and Philadelphia-based Cardone
Industries is laying off 1,300. The latter will likely adversely affect its 1.7
million-square-foot industrial footprint in Philadelphia County. Yet even
as traditional manufacturing languishes, new industries are picking up
Quarterly Net Absorption
2.4MSF
1.6MSF
3.7MSF

$4.92
$4.88
$4.72

Average Asking Rent
Year Ago 12 Month
Period Forecast
Under Construction
3.0MSF
5.1MSF
4.1MSF

Deliveries
765,188
590,700
4.1MSF

Research
PHILADELPHIA
1Q16 INDUSTRIAL MARKET
the slack, including a very specific form of ‘manufacturing’. This quarter,
the successful Philadelphia-based Yards Brewing Company began
exploring options for a new 80,000 to 100,000-square-foot industrial
requirement in the city limits. The news underscores the impact that the
dramatic increase in the popularity, and, therefore, production and
distribution, of craft beer has made on the Greater Philadelphia industrial
real estate market. This is especially true for Pennsylvania. The state is
currently home to 136 craft breweries, a 27.0% increase since 2013, and
the seventh largest volume overall in the nation, according to The
Brewers’ Association. Industrial space will likely see further increases in
demand from this growing sector.
attuned to risk mitigation, and are reasonably regulating the pace of
projects in the pipeline to avoid oversupply. The regional economy is
steadily expanding; in particular, warehousing and distribution needs will
grow to exceed currently available supply. Looking forward, there is
certain to be a warranted increase in speculative construction not only in
the coming quarters, but in the long term, as well. At the start of the year,
the Philadelphia Regional Port Authority requested six final proposals for
industrial development of the Southport area of the Philadelphia Navy
Yard, which will be the most significant maritime expansion in half a
century. Among the proposed plans are 800,000-square-feet of
warehouse space, to be built by Liberty Property Trust.
Speculative Construction Briefly Abates
Outlook
In a modest reversal of the dominant trend of 2015, no new speculative
construction broke ground in the Greater Philadelphia market during firstquarter 2016. Only 900,000-square-feet of speculative product is
currently under construction, a significant portion of which came under
leasing agreement this quarter. The 613,920-square-foot speculative
warehouse at 309 Cedar Lane in Burlington County, set to deliver later in
the spring, was leased by Amazon.com. Year-over-year, the portion of
speculative development, as a percentage of current construction
activity, has decreased by 10.0%. It would appear that developers are
Based on current leasing volume, the Greater Philadelphia industrial
market is in a prime position to enjoy continued positive absorption and
rental growth as demand rises. Additionally, the region has the
fundamentals to support further speculative construction, more of which
is expected to break ground in future quarters.
Lease/User Transactions
Tenant
Building
Submarket
Type
Amazon.com
309 Cedar Lane
Burlington County
New/Relocation
Square Feet
613,920
Samsung
41 Martha Drive
Berks County
New/Relocation
500,400
Crowe Transportation
47 Industrial Road
Lancaster County
New/Relocation
111,375
US Pipe
596 West Trout Run Road
Lancaster County
New/Relocation
63,740
Canon Financial Services
103 Central Avenue
Burlington County
Renewal
53,158
Select Sales Transactions
Building
Submarket
Sale Price
4000 AM Dr
Bucks County
$28,500,000
$114.51
248,895
1 Millennium Dr
Burlington County
$11,500,000
$36.95
311,185
2060 Old Philadelphia Pike
Lancaster County
$10,228,319
$21.35
150,000
220 Lake Dr
New Castle County
$10,100,000
$55.12
183,235
2
Price/SF
Square Feet
Research
PHILADELPHIA
1Q16 INDUSTRIAL MARKET
www.ngkf.com
Submarket Statistics
Total
Inventory
(SF)
Under
Construction
(SF)
Total
Vacancy
Rate
Berks County
21,944,184
133,232
9.1 %
-46,368
-46,368
$4.53
$4.95
$4.14
Bucks County
56,636,480
-
7.1 %
319,719
319,719
$4.46
$10.00
$5.54
Chester County
37,282,508
53,040
4.4 %
238,316
238,316
-
$9.18
$7.87
Delaware County
30,072,080
-
8.9 %
230,173
230,173
$4.94
$6.82
$5.29
Lancaster County
56,526,369
-
1.4 %
466,068
466,068
$4.91
$6.05
$4.87
Montgomery County
73,161,617
315,897
9.6 %
123,931
123,931
$5.98
$8.91
$6.37
Philadelphia County
91,609,942
145,000
10.6 %
-156,169
-156,169
$3.38
$8.23
$3.97
367,233,180
647,169
7.6 %
1,175,670
1,175,670
$4.36
$8.56
$5.19
Burlington County
41,774,374
3,085,915
10.5 %
802,573
802,573
$4.12
$5.58
$4.37
Camden County
32,399,473
600,000
5.9 %
135,500
135,500
$2.72
$5.99
$3.95
Gloucester County
25,690,114
-
9.1 %
158,443
158,443
$3.86
$4.85
$4.44
Southern NJ Total
99,863,961
3,685,915
8.7 %
1,096,516
1,096,516
$3.85
$5.59
$4.28
New Castle County
28,653,167
-
20.0 %
99,190
99,190
$4.18
$5.53
$4.60
Delaware Total
28,653,167
-
20.0 %
99,190
99,190
$4.18
$5.53
$4.60
Market Totals
495,750,308
4,333,084
8.5 %
2,371,376
2,371,376
$4.15
$7.83
$4.92
Total
Inventory
(SF)
Under
Construction
(SF)
Total
Vacancy
Rate
Qtr
Absorption
(SF)
YTD
Absorption
(SF)
Total
Asking Rent
(Price/SF)
147,645,447
3,401,812
9.7 %
1,350,953
1,350,953
$4.15
82,391,764
198,040
8.2%
491,300
491,300
$7.83
General Industrial
265,713,097
773,232
8.0%
529,123
529,123
$4.44
Total
495,750,308
4,333,084
8.5 %
2,371,376
2,371,376
$4.92
Southeastern PA Total
Qtr
Absorption
(SF)
YTD
Absorption
(SF)
WH/Dist
Asking Rent
(Price/SF)
Submarket Statistics by Subtype
Warehouse/Distribution
R&D/Flex
3
R&D/Flex
Total
Asking Rent Asking Rent
(Price/SF)
(Price/SF)
Research
PHILADELPHIA
1Q16 INDUSTRIAL MARKET
Economic Conditions
Employment By Industry
This year began on a note of global uncertainty, due to oil and stock
pricing dips. However, both the U.S. economy and the Philadelphia
Metropolitan Statistical Area weathered the first quarter of 2016 well,
maintaining moderate growth. Since the energy sector has not been a
significant demand driver in the Philadelphia MSA, the drop in oil pricing
stands to benefit the region, as it will translate into cheaper shipping
costs for the trade and transportation tenants that are propelling a
significant portion of industrial absorption.
Philadelphia MSA, Annual Average 2015
11.9%
3.9%
Mining/Logging/Construction
6.4%
Manufacturing
4.2%
Trade/Transportation/Utilities
8.9%
18.4%
Information
Financial Activities
1.6%
Overall employment gains increased locally, with each major industry
performing positively year-over-year. The construction industry posted
the largest year-over-year job growth, in keeping with the number of
development projects underway across all sectors. The outlook remains
positive for overall growth to continue, especially following the Federal
Reserve Board’s decision this quarter to lower the number of anticipated
interest rate increases from four to two.
7.4%
21.4%
Business & Professional
Education/Health
Leisure/Hospitality
15.9%
Other Services
Government
Source: U.S Bureau of Labor Statistics
Unemployment Rate
Payroll Employment
Seasonally Adjusted
Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change
10.0%
3%
8.0%
2%
6.0%
1%
4.0%
0%
2.0%
-1%
0.0%
Jan-11
Jan-12
Jan-13
United States
Jan-14
Jan-15
-2%
Feb-11
Jan-16
Feb-12
Feb-13
Feb-14
United States
Philadelphia, MSA
Feb-15
Philadelphia MSA
Source: U.S. Bureau of Labor Statistics, U.S. Dept. of Labor,
Philadelphia Federal Reserve Bank
Source: U.S. Bureau of Labor Statistics
Manufacturing Business Outlook Survey
Employment Growth by Industry
Current and Future General Activity Indexes*
Philadelphia MSA, February 2016 12-Month % Change
Total
Mining/Logging/Construction
Manufacturing
Trade/Transportation/Utilities
Information
Financial Activities
Business & Professional
Education/Health
Leisure/Hospitality
Other Services
Government
80
60
40
20
(20)
Feb-11
Feb-12
Feb-13
Current Activity
Feb-14
Feb-15
Feb-16
Feb-16
Six-Month Forecast
-4.0%
-1.5%
Source: U.S. Bureau of Labor Statistics
Source: Philadelphia Federal Reserve Bank
* Percentage of respondents indicating an increase minus percentage indicating a decrease
4
1.0%
3.5%
6.0%
8.5%
Research
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Daniela R. Stundel
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Lisa DeNight
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Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has
been revised. With this expansion and refinement in our data, there may be adjustments in historical
statistics including availability, asking rents, absorption and effective rents.
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