Greater Philadelphia Industrial
Greater Philadelphia Industrial www.cbre.com/research
First Quarter 2011
Total Vacancy Rates
12.3%
Direct Lease Rates
$3.72 NNN
Total Net Absorption*
3.62 MSF
Construction
0.39 MSF
Yr.
Qtr.
* The arrows are trend indicators over the specified time period and do not represent a positive or negative value. (e.g., absorption could be negative, but still represent a positive trend over a specified period.)
Hot Topics • Liberty Property Trust broke ground on a two-building, 103,000 SF flex complex at the Philadelphia Navy Yard, 20% of which is pre-leased. • Johnson Controls -Power Solutions Group will build a 400,000 SF production and distribution center in Middletown, DE to complement their existing facility. • Schar USA broke ground on a $15M, 50,000 SF manufacturing facility, which is expandable to 80,000 SF, in Logan Township, NJ. • Global pharmaceutical firm Daiichi Sankyo Inc. will buy and renovate a 140,000 SF manufacturing building in the Lehigh Valley Industrial Park VI, creating more than 80 jobs.
The Southern New Jersey industrial submarkets showed over 250,000 SF of negative total net absorption. Increasing total vacancy rates for the Burlington County, NJ submarket offset vacancy rate decreases in Camden and Gloucester County, NJ submarkets. On average, asking lease rates are holding at $3.51 NNN and should remain relatively unchanged until the market gains velocity. Boise Cascade recently leased 309,000 SF between two buildings at 2700 Burlington Avenue in Burlington, NJ, contributing a reduction in total vacancy rates in the coming quarter. Although asking lease rates are showing a minor decline in the Lehigh Valley and Northeast PA submarkets, market compression should start to push prices higher as available product is absorbed. Walgreens’ occupation of 645,000 SF at 3850 ProLogis Parkway in Easton, PA significantly impacted absorption levels; while United Sporting Companies consolidated operations into
198,400 SF at Centerpoint Business Park on Capital Road in Jenkins Township, PA. Because there remains a limited supply of big box space – over 500,000 SF – an increase in demand offers a promising market for developers to begin land acquisitions and will open the door for future construction. The Philadelphia Suburban industrial submarket continues to show positive total net absorption and declining vacancy rates. Contributing to the positive trend, owners such as Lexington Realty Trust, leased 242,000 SF at 250 Rittenhouse Circle in Bristol, PA. Cost containment is a developing trend for smaller tenants and is shifting tenant focus to operating expenses, and reductions in lease rates. The Philadelphia County, PA industrial submarket posted positive total net absorption primarily due to the recently completed Philadelphia Regional Produce Market’s 667,000 SF build – to – suit warehouse. US Airways also expanded and relocated its commissary from a 22,000 SF facility in Delaware County, PA to a 75,000 SF property adjacent to the Philadelphia International Airport at 8350 Executive Drive, Philadelphia, PA. The New Castle County, DE submarket experienced a second consecutive quarter of positive total net absorption. Total vacancy rates for the region have continued to decrease and are lower than the previous quarter by 130 basis points. Coupled with increasing leasing activity, the asking lease rates climbed to an average of $4.13 NNN, the highest in this submarket since the first quarter of 2009.
Total Vacancy Rate (%) Total Vacancy Rate Lease 12.3% Rate Direct Lease Rate $3.72 NNN
Vacancy vs. Average Direct Asking Lease Rate Total Vacancy vs. Average DirectTotal Asking Lease Rate 15.0%
$4.20
14.5%
$4.10
14.0%
$4.00
13.5%
$3.90
13.0% $3.80
12.5%
$3.70
12.0%
$3.60
11.5%
Per Square Foot Per Year (NNN)
Change from last
Current
Total Vacancy Rate (%)
Quick Stats
The Greater Philadelphia industrial market continues to improve with decreasing vacancy rates and positive total net absorption; illustrating that companies are becoming more confident in the improving local economic conditions. The Central PA industrial submarket remains strong, posting 1.40 MSF of positive total net absorption. Ollie’s Bargain Outlet at 3300 Espresso Way in York, PA recently occupied 603,000 SF of build-to-suit space. As the local market tightens, asking lease rates will start to rise, available space will be absorbed, and demand will increase for Class A buildings over 500,000 SF.
$3.50
11.0% 1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
1Q2011 © 2011, CB Richard Ellis, Inc.
Year
Total VacanLease Rate
MARKET STATISTICS - 100,000 SF AND LARGER AVG. Minimum ASKING LEASE RATE ($NNN/PSF/YR)
0
0
273,000
$4.15
16.3%
0
0
(434,238)
$3.76
24.2%
24.2%
0
0
121,850
$3.23
148,681,066
11.5%
12.0%
603,000
0
1,402,373
$3.49
Chester County, PA
12,375,101
6.1%
6.1%
0
0
0
$3.75
Delaware County, PA
11,061,762
6.8%
6.8%
0
0
32,128
$4.10
Gloucester County, NJ
15,431,128
12.8%
14.6%
0
0
61,162
$4.02
Lehigh Valley, PA*
38,881,492
9.7%
11.3%
0
0
644,000
$4.03
Montgomery County, PA
32,791,600
10.0%
10.3%
0
0
0
$4.54
New Castle County, DE
12,779,110
17.3%
18.5%
0
0
157,760
$4.27
Northeast PA***
36,027,536
19.8%
20.1%
0
0
788,608
$3.51
Philadelphia County, PA
29,662,887
6.9%
7.4%
667,000
394,946
577,900
$3.69
401,769,719
12.3%
12.9%
1,270,000
394,946
3,624,543
$3.72
AVG. Minimum ASKING LEASE RATE ($NNN/PSF/YR)
Inventory
Total Availability Rate
Completions
Bucks County, PA
27,003,861
11.9%
11.9%
Burlington County, NJ
21,679,603
16.3%
Camden, County, NJ
15,394,573
Central PA**
Submarket
Total
Greater Philadelphia Industrial
Under Construction
2011 YTD TOTAL NET ABSORPTION (SF)
Total Vacancy Rate
MARKET STATISTICS - 10,000 TO 100,000 SF Total Availability Rate
Completions
Under Construction
2011 YTD TOTAL NET ABSORPTION (SF)
Bucks County, PA
23,964,650
9.5%
9.8%
0
0
(79,444)
$6.34
Burlington County, NJ
15,871,042
16.9%
17.9%
0
0
(183,891)
$5.96
Camden, County, NJ
17,413,277
14.5%
14.8%
0
23,000
(182,207)
$5.82
Central PA**
39,616,590
10.7%
11.5%
0
0
80,166
$4.45
Chester County, PA
13,507,055
12.3%
12.9%
0
0
(58,963)
$8.23
Delaware County, PA
10,458,268
12.8%
13.1%
0
0
16,175
$7.69
Gloucester County, NJ
10,113,173
12.7%
13.7%
0
0
(35,315)
$5.51
Lehigh Valley, PA*
20,133,149
9.9%
10.6%
0
0
42,921
$5.77
Montgomery County, PA
23,985,724
14.0%
14.5%
0
0
149,090
$6.36
New Castle County, DE
16,357,110
12.5%
13.4%
0
0
36,397
$4.99
Northeast PA***
9,063,464
10.0%
10.0%
0
0
(20,913)
$3.33
Philadelphia County, PA
21,757,469
8.8%
9.2%
47,325
0
100,478
$5.28
222,240,971
11.8%
12.4%
47,325
23,000
(135,506)
$5.74
Submarket
Total
* Lehigh and Northampton Counties ** Cumberland, Dauphin, Franklin, Lancaster, Lebanon and York Counties *** Carbon, Lackawanna, Luzerne, Monroe and Schuylkill Counties
Page 2 © 2011, CB Richard Ellis, Inc.
First Quarter 2011
Inventory
Total Vacancy Rate
PA 8.0% NJ 9.2% DE 8.5%
Economic Conditions
Unemployment Rate - Seasonally Adjusted
Total Vacancy & Net Absorption PA NJ DE
12.0%
15.0%
3,000
14.5%
6.0% 4.0%
13.5%
1,000
13.0%
0
12.5%
-1,000
12.0%
-2,000
0.0%
11.5%
-3,000
2005
2006
2007
2008
2009
2010
1Q 2011
RisingPAoil prices, government spending cuts, an end to the government’s quantitative NJ DE 2005 5.1% 4.6% 4.4% easing and stock prices have created a cloud of uncertainty over the 2006 program, 4.5% 4.5%falling 3.6% 2007 4.2% 4.2% 3.4% current climate. In 2008 economic 6.1% 6.1% 5.6%a recent meeting however, members of the US Federal 2009 8.5% 9.7% 8.5% 2010 8.6% 2011 9.2%growth 8.4%projections to 3.4% - 3.9%, citing stronger consumer Reserve raised 1Q 2011 8.0% 9.2% 8.5% spending, business investment and exports as major factors in domestic recovery. The national unemployment rate fell to 8.9% in February along with continued decreases in layoffs as the job market slowly gained traction in a positive direction. Currently, the workforce is stretched to capacity and hiring must increase if businesses are going to keep pace with continued increases in demand. The year to come should prove far more fruitful than the last, as businesses are increasingly well capitalized and corporate profits are as high as they have been in recent memory. Year
Rental Rates
Average Direct Asking Lease Rate
11.0% 1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
1Q2011
Total VacanNet Absorption ('000's) Continuing the (2,403.50) industrial market’s rebound from the economic downturn, the Greater 12.3% 13.2% (1,425.53) 13.8%region (606.30) Philadelphia experienced a reduction in the overall total vacancy rate for the 14.4% (1,341.95) 14.4% (436.89) fourth consecutive quarter. Settling in at 12.3%, the region’s total vacancy rate had 14.2% 1,052.93 13.9% 524.20 13.2%drop 2,352.51 a noteworthy of 90 basis points from the previous quarter’s rate of 13.2%. In 12.3% 3,624.54 all, ten submarkets experienced a flat to reduced total vacancy rate relative to the fourth quarter of 2010. The Burlington County, NJ submarket was the lone significant detractor, posting a 200 basis point increase in the first quarter and bumping total vacancy levels in the submarket to a near-decade high at 16.3%. With a few large occupancies during the quarter, the Central PA submarket posted 1.40 MSF of positive total net absorption, close to double the next highest total. The quarter’s 3.62 MSF of positive total net absorption is the largest gain since the second quarter of 2006, solidifying that the industrial market is back on track and picking up steam toward reaching pre-recession levels of vacancy.
Year 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011
New Construction
$3.72 NNN
Total Vacancy Rate (%)
14.0%
2,000 Square Feet (000's)
Unemployment Rate (%)
Total Vacancy Rate (%)
4,000
Construction Activity
Average Direct Asking Lease Rate
Greater Philadelphia Industrial
8.0%
2.0%
0.39 MSF
Construction ('000's)
$4.20
8,000
$4.10
7,000
$4.00
6,000
$3.90
5,000
Square Feet (000's)
Per Square Foot Per Year (NNN)
Net Absorption ('000's)
Total Vacancy vs. Net Absorption
10.0%
$3.80 $3.70
4,000 3,000 2,000
$3.60
1,000
$3.50
0
1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
1Q2011
2005
2006
2007
2008
2009
2010
1Q 2011
Year There wereConstruction two 2005 5,253major completions in the first quarter: Ollie’s Bargain Outlet’s 603,000 2006 7,208 2007 4,841at 3300 Espresso Way in York, PA, and the Philadelphia Regional SF warehouse 2008 4,906 2009 Market’s 1,233 667,000 SF warehouse at 6700 Essington Avenue in Philadelphia, Produce 2010 1,665 1Q 2011 395 PA. No new construction projects began during the quarter, leaving 394,946 SF of 100% pre-leased industrial space under construction, all of which is expected to deliver in the second quarter. Over a year has passed in the Southern New Jersey and Northern Delaware submarkets without the development of any new properties, allowing for a natural rectification of the high vacancies in both submarkets. With few known construction projects on the horizon and ever fewer speculative undertakings, prospective tenants will presumably look to existing space for their requirements.
Page 3 © 2011, CB Richard Ellis, Inc.
First Quarter 2011
Rate Aside Lease from New Castle County, DE’s $0.14 increase to rental rates, the average $4.09 $4.01 asking lease $3.95 rate for the Greater Philadelphia industrial market declined, albeit at $3.92 $3.83 a more measured pace, for the third straight quarter to $3.72 NNN. Lease rates are $3.86 currently$3.80 at the lowest levels in the past decade, and, with a bit of luck, have reached the bottom and will begin to slowly recoup the losses. With a $0.18 reduction in the average asking lease rate, Philadelphia County, PA experienced the largest decline in rental prices; perhaps a reflection of the area’s current lack of quality space, and build-to-suit environment. We should begin to see an upward trend in asking lease rates as vacancy continues to decline and tenants in the market vie for a reduced amount of available space.
Year 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010
Vacancy 12.3% Absorption 3.62 MSF
Greater Philadelphia Industrial
Top Lease Transactions Size (SF)
Tenant
Address, City, State
400,000
Diapers.com
600 First Avenue, Gouldsboro, PA
255,000
Boise Cascade Building Materials
2700 Burlington Avenue, Delanco, NJ
241,977
Confidential
250 Rittenhouse Circle, Bristol, PA
198,400
United Sporting Companies
100-124 Capital Road, Jenkins Township, PA
157,500
Barry Callebaut U.S.A., LLC
7570 Industrial Park Way, Macungie, PA
Top Sale Transactions Size (SF)
Buyer
Address, City, State
1,644,480
KBS Real Estate Investment Trust II
Portfolio of 4 Properties in Northeast PA
270,000
Endurance Real Estate Group, LLC
2834 Schoeneck Road, Macungie, PA
259,910
Dermody Properties, Inc.
1109 Commerce Boulevard, Logan Township, NJ
179,200
SK Realty Management
34 E Main Street, New Kingston, PA
136,452
Pet Food Experts, Inc.
180 Greenfield Road, Lancaster, PA
Availability Rate Available space as a percentage of the Base Inventory or Building Sq. Ft Average Asking Lease Rate Average of Asking Lease Rates for each property weighted by the associated Available Space. Available Area (Square Feet) Area which is either physically vacant or occupied that is being actively marketed and is available for tenant build-out, including sublease space. Completions Rentable Building Area completed during the period. Base Inventory, Base or Building Square Feet The sum of the Rentable Building Area for all competitive properties. Market Coverage Includes all competitive industrial and flex buildings 10,000 SF and greater in size.
Submarket Map
Net Absorption The change in occupied square feet from one period to the next, including both direct and sublease space. Occupied Square Feet Rentable Building Area less Vacant Space. Under Construction Buildings that have begun construction as evidenced by site excavation or foundation work, and is on-going. Vacancy Rate Vacant space as a percentage of the Base Inventory or Building Sq. Ft. Vacant Area (Square Feet) Existing Building Area which is physically vacant or immediately available, including sublease space.
© 2011 CB Richard Ellis, Inc. CB Richard Ellis statistics contained herein may represent a different data set than that used to generate National Vacancy and Availability Index statistics published by CB Richard Ellis’ Corporate Communications Department or CB Richard Ellis’ research and econometric forecasting unit, CB Richard Ellis—Econometric Advisors. Information herein has been obtained from sources believed 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 independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis.
For more information regarding the MarketView, please contact: Michael L. Compton, Research Manager CB Richard Ellis, Inc. Two Liberty Place, 50 S. 16th Street, Suite 3000 T. 215.561.8900 F. 215.557.6719 [email protected]
First Quarter 2011
Total Vacancy Rates
12.3%
Direct Lease Rates
$3.72 NNN
Total Net Absorption*
3.62 MSF
Construction
0.39 MSF
Yr.
Qtr.
* The arrows are trend indicators over the specified time period and do not represent a positive or negative value. (e.g., absorption could be negative, but still represent a positive trend over a specified period.)
Hot Topics • Liberty Property Trust broke ground on a two-building, 103,000 SF flex complex at the Philadelphia Navy Yard, 20% of which is pre-leased. • Johnson Controls -Power Solutions Group will build a 400,000 SF production and distribution center in Middletown, DE to complement their existing facility. • Schar USA broke ground on a $15M, 50,000 SF manufacturing facility, which is expandable to 80,000 SF, in Logan Township, NJ. • Global pharmaceutical firm Daiichi Sankyo Inc. will buy and renovate a 140,000 SF manufacturing building in the Lehigh Valley Industrial Park VI, creating more than 80 jobs.
The Southern New Jersey industrial submarkets showed over 250,000 SF of negative total net absorption. Increasing total vacancy rates for the Burlington County, NJ submarket offset vacancy rate decreases in Camden and Gloucester County, NJ submarkets. On average, asking lease rates are holding at $3.51 NNN and should remain relatively unchanged until the market gains velocity. Boise Cascade recently leased 309,000 SF between two buildings at 2700 Burlington Avenue in Burlington, NJ, contributing a reduction in total vacancy rates in the coming quarter. Although asking lease rates are showing a minor decline in the Lehigh Valley and Northeast PA submarkets, market compression should start to push prices higher as available product is absorbed. Walgreens’ occupation of 645,000 SF at 3850 ProLogis Parkway in Easton, PA significantly impacted absorption levels; while United Sporting Companies consolidated operations into
198,400 SF at Centerpoint Business Park on Capital Road in Jenkins Township, PA. Because there remains a limited supply of big box space – over 500,000 SF – an increase in demand offers a promising market for developers to begin land acquisitions and will open the door for future construction. The Philadelphia Suburban industrial submarket continues to show positive total net absorption and declining vacancy rates. Contributing to the positive trend, owners such as Lexington Realty Trust, leased 242,000 SF at 250 Rittenhouse Circle in Bristol, PA. Cost containment is a developing trend for smaller tenants and is shifting tenant focus to operating expenses, and reductions in lease rates. The Philadelphia County, PA industrial submarket posted positive total net absorption primarily due to the recently completed Philadelphia Regional Produce Market’s 667,000 SF build – to – suit warehouse. US Airways also expanded and relocated its commissary from a 22,000 SF facility in Delaware County, PA to a 75,000 SF property adjacent to the Philadelphia International Airport at 8350 Executive Drive, Philadelphia, PA. The New Castle County, DE submarket experienced a second consecutive quarter of positive total net absorption. Total vacancy rates for the region have continued to decrease and are lower than the previous quarter by 130 basis points. Coupled with increasing leasing activity, the asking lease rates climbed to an average of $4.13 NNN, the highest in this submarket since the first quarter of 2009.
Total Vacancy Rate (%) Total Vacancy Rate Lease 12.3% Rate Direct Lease Rate $3.72 NNN
Vacancy vs. Average Direct Asking Lease Rate Total Vacancy vs. Average DirectTotal Asking Lease Rate 15.0%
$4.20
14.5%
$4.10
14.0%
$4.00
13.5%
$3.90
13.0% $3.80
12.5%
$3.70
12.0%
$3.60
11.5%
Per Square Foot Per Year (NNN)
Change from last
Current
Total Vacancy Rate (%)
Quick Stats
The Greater Philadelphia industrial market continues to improve with decreasing vacancy rates and positive total net absorption; illustrating that companies are becoming more confident in the improving local economic conditions. The Central PA industrial submarket remains strong, posting 1.40 MSF of positive total net absorption. Ollie’s Bargain Outlet at 3300 Espresso Way in York, PA recently occupied 603,000 SF of build-to-suit space. As the local market tightens, asking lease rates will start to rise, available space will be absorbed, and demand will increase for Class A buildings over 500,000 SF.
$3.50
11.0% 1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
1Q2011 © 2011, CB Richard Ellis, Inc.
Year
Total VacanLease Rate
MARKET STATISTICS - 100,000 SF AND LARGER AVG. Minimum ASKING LEASE RATE ($NNN/PSF/YR)
0
0
273,000
$4.15
16.3%
0
0
(434,238)
$3.76
24.2%
24.2%
0
0
121,850
$3.23
148,681,066
11.5%
12.0%
603,000
0
1,402,373
$3.49
Chester County, PA
12,375,101
6.1%
6.1%
0
0
0
$3.75
Delaware County, PA
11,061,762
6.8%
6.8%
0
0
32,128
$4.10
Gloucester County, NJ
15,431,128
12.8%
14.6%
0
0
61,162
$4.02
Lehigh Valley, PA*
38,881,492
9.7%
11.3%
0
0
644,000
$4.03
Montgomery County, PA
32,791,600
10.0%
10.3%
0
0
0
$4.54
New Castle County, DE
12,779,110
17.3%
18.5%
0
0
157,760
$4.27
Northeast PA***
36,027,536
19.8%
20.1%
0
0
788,608
$3.51
Philadelphia County, PA
29,662,887
6.9%
7.4%
667,000
394,946
577,900
$3.69
401,769,719
12.3%
12.9%
1,270,000
394,946
3,624,543
$3.72
AVG. Minimum ASKING LEASE RATE ($NNN/PSF/YR)
Inventory
Total Availability Rate
Completions
Bucks County, PA
27,003,861
11.9%
11.9%
Burlington County, NJ
21,679,603
16.3%
Camden, County, NJ
15,394,573
Central PA**
Submarket
Total
Greater Philadelphia Industrial
Under Construction
2011 YTD TOTAL NET ABSORPTION (SF)
Total Vacancy Rate
MARKET STATISTICS - 10,000 TO 100,000 SF Total Availability Rate
Completions
Under Construction
2011 YTD TOTAL NET ABSORPTION (SF)
Bucks County, PA
23,964,650
9.5%
9.8%
0
0
(79,444)
$6.34
Burlington County, NJ
15,871,042
16.9%
17.9%
0
0
(183,891)
$5.96
Camden, County, NJ
17,413,277
14.5%
14.8%
0
23,000
(182,207)
$5.82
Central PA**
39,616,590
10.7%
11.5%
0
0
80,166
$4.45
Chester County, PA
13,507,055
12.3%
12.9%
0
0
(58,963)
$8.23
Delaware County, PA
10,458,268
12.8%
13.1%
0
0
16,175
$7.69
Gloucester County, NJ
10,113,173
12.7%
13.7%
0
0
(35,315)
$5.51
Lehigh Valley, PA*
20,133,149
9.9%
10.6%
0
0
42,921
$5.77
Montgomery County, PA
23,985,724
14.0%
14.5%
0
0
149,090
$6.36
New Castle County, DE
16,357,110
12.5%
13.4%
0
0
36,397
$4.99
Northeast PA***
9,063,464
10.0%
10.0%
0
0
(20,913)
$3.33
Philadelphia County, PA
21,757,469
8.8%
9.2%
47,325
0
100,478
$5.28
222,240,971
11.8%
12.4%
47,325
23,000
(135,506)
$5.74
Submarket
Total
* Lehigh and Northampton Counties ** Cumberland, Dauphin, Franklin, Lancaster, Lebanon and York Counties *** Carbon, Lackawanna, Luzerne, Monroe and Schuylkill Counties
Page 2 © 2011, CB Richard Ellis, Inc.
First Quarter 2011
Inventory
Total Vacancy Rate
PA 8.0% NJ 9.2% DE 8.5%
Economic Conditions
Unemployment Rate - Seasonally Adjusted
Total Vacancy & Net Absorption PA NJ DE
12.0%
15.0%
3,000
14.5%
6.0% 4.0%
13.5%
1,000
13.0%
0
12.5%
-1,000
12.0%
-2,000
0.0%
11.5%
-3,000
2005
2006
2007
2008
2009
2010
1Q 2011
RisingPAoil prices, government spending cuts, an end to the government’s quantitative NJ DE 2005 5.1% 4.6% 4.4% easing and stock prices have created a cloud of uncertainty over the 2006 program, 4.5% 4.5%falling 3.6% 2007 4.2% 4.2% 3.4% current climate. In 2008 economic 6.1% 6.1% 5.6%a recent meeting however, members of the US Federal 2009 8.5% 9.7% 8.5% 2010 8.6% 2011 9.2%growth 8.4%projections to 3.4% - 3.9%, citing stronger consumer Reserve raised 1Q 2011 8.0% 9.2% 8.5% spending, business investment and exports as major factors in domestic recovery. The national unemployment rate fell to 8.9% in February along with continued decreases in layoffs as the job market slowly gained traction in a positive direction. Currently, the workforce is stretched to capacity and hiring must increase if businesses are going to keep pace with continued increases in demand. The year to come should prove far more fruitful than the last, as businesses are increasingly well capitalized and corporate profits are as high as they have been in recent memory. Year
Rental Rates
Average Direct Asking Lease Rate
11.0% 1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
1Q2011
Total VacanNet Absorption ('000's) Continuing the (2,403.50) industrial market’s rebound from the economic downturn, the Greater 12.3% 13.2% (1,425.53) 13.8%region (606.30) Philadelphia experienced a reduction in the overall total vacancy rate for the 14.4% (1,341.95) 14.4% (436.89) fourth consecutive quarter. Settling in at 12.3%, the region’s total vacancy rate had 14.2% 1,052.93 13.9% 524.20 13.2%drop 2,352.51 a noteworthy of 90 basis points from the previous quarter’s rate of 13.2%. In 12.3% 3,624.54 all, ten submarkets experienced a flat to reduced total vacancy rate relative to the fourth quarter of 2010. The Burlington County, NJ submarket was the lone significant detractor, posting a 200 basis point increase in the first quarter and bumping total vacancy levels in the submarket to a near-decade high at 16.3%. With a few large occupancies during the quarter, the Central PA submarket posted 1.40 MSF of positive total net absorption, close to double the next highest total. The quarter’s 3.62 MSF of positive total net absorption is the largest gain since the second quarter of 2006, solidifying that the industrial market is back on track and picking up steam toward reaching pre-recession levels of vacancy.
Year 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011
New Construction
$3.72 NNN
Total Vacancy Rate (%)
14.0%
2,000 Square Feet (000's)
Unemployment Rate (%)
Total Vacancy Rate (%)
4,000
Construction Activity
Average Direct Asking Lease Rate
Greater Philadelphia Industrial
8.0%
2.0%
0.39 MSF
Construction ('000's)
$4.20
8,000
$4.10
7,000
$4.00
6,000
$3.90
5,000
Square Feet (000's)
Per Square Foot Per Year (NNN)
Net Absorption ('000's)
Total Vacancy vs. Net Absorption
10.0%
$3.80 $3.70
4,000 3,000 2,000
$3.60
1,000
$3.50
0
1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
1Q2011
2005
2006
2007
2008
2009
2010
1Q 2011
Year There wereConstruction two 2005 5,253major completions in the first quarter: Ollie’s Bargain Outlet’s 603,000 2006 7,208 2007 4,841at 3300 Espresso Way in York, PA, and the Philadelphia Regional SF warehouse 2008 4,906 2009 Market’s 1,233 667,000 SF warehouse at 6700 Essington Avenue in Philadelphia, Produce 2010 1,665 1Q 2011 395 PA. No new construction projects began during the quarter, leaving 394,946 SF of 100% pre-leased industrial space under construction, all of which is expected to deliver in the second quarter. Over a year has passed in the Southern New Jersey and Northern Delaware submarkets without the development of any new properties, allowing for a natural rectification of the high vacancies in both submarkets. With few known construction projects on the horizon and ever fewer speculative undertakings, prospective tenants will presumably look to existing space for their requirements.
Page 3 © 2011, CB Richard Ellis, Inc.
First Quarter 2011
Rate Aside Lease from New Castle County, DE’s $0.14 increase to rental rates, the average $4.09 $4.01 asking lease $3.95 rate for the Greater Philadelphia industrial market declined, albeit at $3.92 $3.83 a more measured pace, for the third straight quarter to $3.72 NNN. Lease rates are $3.86 currently$3.80 at the lowest levels in the past decade, and, with a bit of luck, have reached the bottom and will begin to slowly recoup the losses. With a $0.18 reduction in the average asking lease rate, Philadelphia County, PA experienced the largest decline in rental prices; perhaps a reflection of the area’s current lack of quality space, and build-to-suit environment. We should begin to see an upward trend in asking lease rates as vacancy continues to decline and tenants in the market vie for a reduced amount of available space.
Year 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010
Vacancy 12.3% Absorption 3.62 MSF
Greater Philadelphia Industrial
Top Lease Transactions Size (SF)
Tenant
Address, City, State
400,000
Diapers.com
600 First Avenue, Gouldsboro, PA
255,000
Boise Cascade Building Materials
2700 Burlington Avenue, Delanco, NJ
241,977
Confidential
250 Rittenhouse Circle, Bristol, PA
198,400
United Sporting Companies
100-124 Capital Road, Jenkins Township, PA
157,500
Barry Callebaut U.S.A., LLC
7570 Industrial Park Way, Macungie, PA
Top Sale Transactions Size (SF)
Buyer
Address, City, State
1,644,480
KBS Real Estate Investment Trust II
Portfolio of 4 Properties in Northeast PA
270,000
Endurance Real Estate Group, LLC
2834 Schoeneck Road, Macungie, PA
259,910
Dermody Properties, Inc.
1109 Commerce Boulevard, Logan Township, NJ
179,200
SK Realty Management
34 E Main Street, New Kingston, PA
136,452
Pet Food Experts, Inc.
180 Greenfield Road, Lancaster, PA
Availability Rate Available space as a percentage of the Base Inventory or Building Sq. Ft Average Asking Lease Rate Average of Asking Lease Rates for each property weighted by the associated Available Space. Available Area (Square Feet) Area which is either physically vacant or occupied that is being actively marketed and is available for tenant build-out, including sublease space. Completions Rentable Building Area completed during the period. Base Inventory, Base or Building Square Feet The sum of the Rentable Building Area for all competitive properties. Market Coverage Includes all competitive industrial and flex buildings 10,000 SF and greater in size.
Submarket Map
Net Absorption The change in occupied square feet from one period to the next, including both direct and sublease space. Occupied Square Feet Rentable Building Area less Vacant Space. Under Construction Buildings that have begun construction as evidenced by site excavation or foundation work, and is on-going. Vacancy Rate Vacant space as a percentage of the Base Inventory or Building Sq. Ft. Vacant Area (Square Feet) Existing Building Area which is physically vacant or immediately available, including sublease space.
© 2011 CB Richard Ellis, Inc. CB Richard Ellis statistics contained herein may represent a different data set than that used to generate National Vacancy and Availability Index statistics published by CB Richard Ellis’ Corporate Communications Department or CB Richard Ellis’ research and econometric forecasting unit, CB Richard Ellis—Econometric Advisors. Information herein has been obtained from sources believed 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 independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis.
For more information regarding the MarketView, please contact: Michael L. Compton, Research Manager CB Richard Ellis, Inc. Two Liberty Place, 50 S. 16th Street, Suite 3000 T. 215.561.8900 F. 215.557.6719 [email protected]
