CoStar: Lehigh Valley Industrial Market Performed Well Throughout 2020
By Colin McEvoy on January 29, 2021
Pennsylvania’s seven industrial markets contained within the North Atlantic Trade Corridor performed well over the course of 2020, and the Lehigh Valley topped them all, according to the commercial real estate research organization CoStar.
“2020 was a transformative year for commercial real estate, and while the pandemic has caused serious disruption to the industry, the surge of online shopping caused by the coronavirus has given the industrial sector a stability nearly every other asset class lacks,” said CoStar Market Analyst Ben Atwood.
Thanks largely to the growth in e-commerce resulting from the COVID-19 crisis, the industrial sector of the Lehigh Valley and other nearby markets held up remarkably well, Atwood said, even as the shutdown generated tremendous uncertainty elsewhere across the commercial real estate world.
“Every single one of these markets performed through the year, but Lehigh Valley’s proven ability to effortlessly absorb new supply through the years has attracted new capital,” Atwood said. “For the last 10 years, investors have preferred putting their money in Lehigh Valley over every market in central and northeast Pennsylvania.”
The Lehigh Valley Economic Development Corporation (LVEDC) will provide an overview of industrial and office activity in its next Commercial Real Estate Report. It will be included in the organization’s 2020 Annual Report, which will be released in March.
More than $750 million was spent on industrial investment in the Lehigh Valley through 2020, Atwood said, including acquiring assets, warehouses, and distribution centers. That’s higher than any other northeastern and central Pennsylvania markets, such as Harrisburg ($306 million), Reading ($288 million), Scranton ($279 million), and York ($247 million).
“Sales within Lehigh Valley accounted for 35% of all investment activity across the seven markets,” he said. “That’s the highest single-year figure ever recorded for the Lehigh Valley, and double the investment the market saw in 2019.”
The Lehigh Valley has 10.1 million square feet of industrial inventory under construction, Atwood said, the most of any other markets in the northeastern and central Pennsylvania. The next most were Reading (3.7 million), Harrisburg (2.4 million), and Scranton (2.1 million).
“Reading may be an up-and-comer, but Lehigh Valley is still the queen of Pennsylvania logistics,” Atwood said. “… There’s lots of new space coming online in the Lehigh Valley, which has been the go-to market for distributors and investors over the last decade.”
Lehigh Valley was also singled out in a nationwide 2020 year-in-review provided by Abby Corbett, Managing Director and Senior Economist in CoStar’s Chicago office.
Corbett said relatively smaller markets around the country with fast-growing populations and labor markets are witnessing the highest rates of current under construction activity at over 6% of existing inventory. She specifically cited the markets of Austin, Texas; Nashville, Tenn.; and the Lehigh Valley.
“Lehigh Valley’s unique geographic positioning between New York, Boston, Philadelphia, and Baltimore have helped it to draw a strong demand from logistics tenants, a factor which should help it insulate vacancies from softening in the near-term,” Corbett said.
The Lehigh Valley’s year-end industrial vacancy rate at the end of the year was just under 6%, Atwood said, and industrial net absorption in the region was 2.4 million square-feet in 2020.
“Taking a look at these markets’ overhead industrial occupancies, we can see that most performed well through the turbulent year,” he said. “Nearly every market is more than 90% occupied, and what makes the vacancies in places like Scranton and Lehigh Valley even more impressive is that they had millions of square feet of spec space delivered in 2020.”
Lehigh Valley’s industrial rent growth by market is 5.4%, Atwood said, which he found particularly impressive considering that millions of square feet of speculative space arrived in 2020, and that the region contends with intense competition from nearby Scranton and Reading.
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