RESEARCH 3Q 2019

I-81/78 CORRIDOR - PA
INDUSTRIAL MARKET
THE I-81/78 CORRIDOR REGAINS CURRENT CONDITIONS
MOMENTUM IN THE THIRD
QUARTER
Market vacancy rose 50 basis points to 7.6% due to speculative supply
additions outpacing demand

Absorption of industrial space in the I-81/78 Corridor moved into

The construction pipeline measured 18.1 million square feet across 30
positive territory in the third quarter of 2019, following last quarter’s net
projects
occupancy losses, the market’s first in a decade. Large occupancies
such as Lowes’ move into the 1.2-million-square-foot warehouse at
Average asking rents rose $0.08 quarter-over-quarter to $4.68/SF
4532 United Drive in the Central Pennsylvania submarket were tempered
by a continuation of struggling national retailers closing warehouse
operations. Nevertheless, the market realized approximately 751,000 MARKET ANALYSIS
square feet in positive absorption. Speculative supply additions
outpaced demand, causing market vacancy to increase 50 basis points
Asking Rent and Vacancy
from last quarter to 7.6%. Although this is the highest vacancy rate
Asking Rent and Vacancy
charted in the market since 2014, activity scheduled for the fourth
$6 14%
quarter is expected to stem the upward creep in vacancy. Numerous
build-to-suit warehouses will deliver across the market, and vacant $5 12%

speculative warehouses will be occupied by tenants who leased them $4 10%

earlier in the year. Pending occupancies by QVC, True Value, NFI, $3 8%
Riviana Foods, Bayer Pharmaceuticals, McKesson and more will carry
$2 6%
the market’s renewed momentum through the rest of the year.
$1 4%
3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18 3Q19
CENTRAL PENNSYLVANIA
Average Asking Rent (Price/SF) Vacancy (%)
The I-81/I-78 Corridor’s largest submarket led the region in the third
quarter, accumulating 1.2 million square feet of net absorption, which
outpaced new supply deliveries. Vacancy dropped from 7.5% to 7.2% as Net Absorption (SF, Millions)
a result. Recent construction was the primary destination for new
occupiers in the past three months. In addition to Lowes’ occupancy of 6

4532 United Drive, significant move-ins included Distribution 4

2
Management’s move into 419,344 square feet at 1495 Dennison Circle
0
and National Business Furniture’s occupancy of 276,249 square feet at
-2
45 Logistics Drive. All three warehouses were constructed since 2016.
-4
3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18 3Q19
The construction pipeline expanded to 6.4 million square feet as ground
broke for the 352,000-square-foot warehouse at 693 North Hills Road in
MARKET SUMMARY
York, constructed on the site of a former industrial building that the
Current Prior Year Ago 12 Month
developer, Endurance Real Estate Group, tore down after purchasing Quarter Quarter Period Forecast
earlier in 2019. With prime development sites in dwindling supply,
Total Inventory 351 MSF 349 MSF 342 MSF 
obsolete industrial buildings have become more attractive targets for
Vacancy Rate 7.6% 7.1% 6.3% 
redevelopment or raze and rebuild. The successful redevelopment and
expansion of the existing structure at 485 St. Johns Church Road in Quarterly Net Absorption 0.8 MSF -1.1 MSF 4.4 MSF 
Central Pennsylvania and the redevelopment of Kraft Food’s demolished Average Asking Rent $4.68 $4.60 $4.61 

Under Construction 18.1 MSF 17.3 MSF 8.8 MSF 

Deliveries 2.7 MSF 2.1 MSF 4.4 MSF 

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3Q 2019 I-81/78 CORRIDOR INDUSTRIAL MARKET

plant into Park 100 Logistics Center in Lehigh Valley are two other
recent examples of this trend.
Central Pennsylvania realized the strongest rent growth of the three
Corridor submarkets with an average asking rate of $4.82/SF, a 5.0%
increase year over year. Higher rates for new construction are exerting
upward pressure on the overall average for Central Pennsylvania, which
has also maintained the largest volume of new construction in the
region for the past 12 months.
Lehigh Valley
The Lehigh Valley gained approximately 123,000 square feet of net
positive absorption in the third quarter, driven primarily by KPG
Logistics’ occupancy of 246,400 square feet at 2900 Brodhead Road
upon its completion. That building was the Valley’s sole delivery this
quarter; as it delivered partially empty, vacancy rose slightly to 6.5%.
This quarter, a notable announcement was made regarding plans for the
development at Kraft Foods’ former complex in Upper Macungie
Township. Keurig Dr Pepper leased more than 1.5 million square feet
between two buildings, one a recently-delivered, 730,080-square-foot
warehouse, and one a planned manufacturing facility. Warehousing
operations will commence by year-end, so between Keurig Dr Pepper's
occupancy of its 730,080-square-foot warehouse, and QVC’s occupancy
of its 1.6 million square foot facility at 3419 Commerce Center
Boulevard, following the completion of its expansion next quarter, the
Valley is expected to close the year on a high note.
Northeastern Pennsylvania
Northeastern Pennsylvania’s negative absorption streak continued for
the third consecutive quarter, again due to national retailers closing
local distribution operations following bankruptcy. 556,834 square feet
of net occupancy losses hit the submarket over the past three months
as Sears vacated the 560,000-square-foot warehouse at 1057 Hanover
Street and United Sporting Companies vacated the 198,400-square-foot
warehouse at 100-124 Capital Road. As a result of nearly a million
square feet of occupancy losses to-date, vacancy has more than
doubled year over year, moving from 4.7% to 10.2%.
Demand for space in the submarket is still healthy; year-to-date,
occupiers have transacted large leases for new construction, such as
Medline Industries, which leased the 510,510-square-foot warehouse at
198 Commercial Blvd last quarter, and an as-yet-undisclosed
ecommerce occupier, which leased over a million square feet at a
planned building in Archbald this quarter. NFI will move into a 1.1-
million-square-foot warehouse under construction in Tobyhanna by
year-end. Expect vacancy to remain elevated, however, as new
construction will likely continue to appeal to prospective tenants more
than second-generation space left behind by Sears, Kmart and other
retailers that have withdrawn from warehouses in the submarket so far
this year

LEASE/USER TRANSACTIONS
Tenant Building Submarket Type Square Feet

Keurig Dr Pepper 7352 Industrial Blvd Lehigh Valley Direct 730,080; 811,200

Smuckers 801 Centerville Rd Central Pennsylvania Direct 1,138,000

Undisclosed Ecommerce Archbald Heights Rd & Oak

Northeastern Pennsylvania Direct 1,016,480
Company Ridge Rd

Allen Distribution 100 Capital Ln Central Pennsylvania Renewal 321,333

SELECT SALES TRANSACTIONS

Building Submarket Sale Price Price/SF Square Feet

485 St. Johns Church Road Central Pennsylvania $42,500,000 $93 457,000

99 Freeport Road Northeastern Pennsylvania $36,700,000 $117 312,356

2860 Bath Pike Lehigh Valley $11,000,000 $58 188,500

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3Q 2019 I-81/78 CORRIDOR INDUSTRIAL MARKET

SUBMARKET STATISTICS
Total Under Total Qtr YTD W/D R&D/Flex Total
Inventory Construction Vacancy Absorption Absorption Asking Rent Asking Rent Asking Rent
(SF) (SF) Rate (SF) (SF) (Price/SF) (Price/SF) (Price/SF)

Central PA 179,119,854 6,373,692 7.2 % 1,184,556 2,329,564 $4.69 $9.16 $4.82

Lehigh Valley 101,289,542 5,492,574 6.5 % 122,936 680,260 $5.20 $7.44 $5.39

Northeastern PA 71,043,033 6,268,294 10.2 % -556,834 -965,495 $4.06 $8.50 $3.86

Market Total 351,452,429 18,134,560 7.6 % 750,658 2,044,329 $4.57 $8.54 $4.68

SUBMARKET STATISTICS BY SUBTYPE

Total Qtr YTD Total
Total Inventory Under Construction
Vacancy Absorption Absorption Asking Rent
(SF) (SF)
Rate (SF) (SF) (Price/SF)

Warehouse/Distribution 236,797,470 17,097,560 9.0 % 893,860 1,871,701 $4.57

R&D/Flex 11,651,021 - 8.1 % -75,426 -64,138 $8.54

General Industrial 103,003,938 1,037,000 4.5 % -67,776 236,766 $4.31

Total 351,452,429 18,134,560 7.6 % 750,658 2,044,329 $4.68

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3Q 2019 I-81/78 CORRIDOR INDUSTRIAL MARKET

ECONOMY METRO EMPLOYMENT BY INDUSTRY

The unemployment rate for the Harrisburg-Carlisle area was 4.0% (not Harrisburg-Carlisle MSA, Annual Average 2018
seasonally adjusted) in the third quarter of 2019, rising slightly from the
second quarter. New job growth was relatively muted year over year,
Construction
registering a nearly zero percent change. Among the sectors that did 3.5%
Manufacturing
16.7% 6.1%
see positive momentum in job gains were financial activities, “eds & Trade/Transportation/Utilities
meds”, and trade/transportation/utilities, the latter of which is the most Information
important segment to the warehousing/distribution market. 4.5%
Financial Activities
21.3%
Business & Professional
9.3%
A perennial topic of concern for warehouse occupiers is where they will Education & Health
find employees. A major ecommerce warehouse can easily employ 1.0% Leisure/Hospitality
1,000 people, and with 18.1 million square feet of industrial space under 6.3% Other Services
16.9%
construction in the third quarter, a lot of employees will be needed in the Government
14.3%
future. Measuring the volume of employees in the
trade/transportation/utilities sector across metros in the Corridor
market shows that Allentown has the largest employment pool, but
Source: U.S. Bureau of Labor Statistics
Lebanon, with the smallest, has seen the most growth (6.5% year over
year), showing room for further employment growth in this area.

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%
Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 -2%
Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19

United States Harrisburg-Carlisle MSA United States Harrisburg-Carlisle MSA

Source: U.S. Bureau of Labor Statistics. Local data not seasonally adjusted. Source: U.S. Bureau of Labor Statistics

TRADE/TRANSPORTATION/UTILS EMPLOYMENT EMPLOYMENT GROWTH BY INDUSTRY

March 2019, Thousands of Jobs per MSA Harrisburg-Carlisle MSA, August 2019, 12-Month
% Change
100,000
Total Nonfarm
80,000 Construction
Manufacturing
60,000
Trade/Transportation/Utilities
40,000 Information
Financial Activities
20,000 Business & Professional
Education & Health
0
Leisure/Hospitality
Other Services
Government
-8.00% -4.00% 0.00% 4.00% 8.00% 12.00%

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

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3Q 2019 I-81/78 CORRIDOR INDUSTRIAL MARKET

PHILADELPHIA
1735 Market Street
Suite 3900
Philadelphia, PA 19103
215.561.8300

LISA DENIGHT ANGELO BRUTICO

Research Manager Research Analyst
215.246.2725 610.755.6969
lisa.denight@ngkf.com angelo.brutico@ngkf.com

Newmark 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. Newmark Knight Frank Research Reports are available at www.ngkf.com/research

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© NEWMARK KNIGHT FRANK | 2018 RESEARCH | 5