Listen to this articleWhile certainly off from pandemic-era highs, the logistics and warehousing sector still leads the commercial real estate market in the Greater Lehigh Valley.
Ryan Barros, a senior vice president with commercial real estate firm CBRE, said while the overall commercial real estate market has softened, logistics remains and will remain a top use for commercial facilities in the region.
The most recent report from CBRE showed that commercial vacancy rate along the I-78/I-80 industrial corridor continues to rise as a drop-off in pandemic-era demand for space and concerns about current economic conditions have impacted the market, but he said logistics facilities will always be a part of the Lehigh Valley landscape.
“Because of our location, logistics and warehousing continues to dominate the marketplace,” Barros said.
He said because of the lower cost of real estate in the area compared to the nearby markets like New York and Philadelphia, and the Lehigh Valley’s proximity to both ports and consumers, the area will always be a logistics hub.
However, he said the market has been changing and evolving in recent years.
“Things have certainly normalized to a more pre-pandemic market as compared to what it was like just post-pandemic,” he said. “We’re still doing fine and it’s a lot easier than right after the pandemic when we couldn’t find facilities fast enough.”
He said tenant demand is still strong, but there has been turnover in the market.
Since the demand isn’t as frenzied as it was a couple of years ago, tenants have more time to make decisions.
“Before, if you diddn’t sign a lease right away, you were in danger of losing it,” Barros said.
Now, he said instead of leases getting signed in 30 days, tenants are taking three to four months to make decisions, leaving properties on the market longer and impacting vacancy statistics.
Some large logistics facilities have been closing.
Earlier this month, United Natural Foods Inc., a Providence, Rhode Island–based natural and organic food company, announced it was closing its Schnecksville distribution center, eliminating more than 700 jobs.
But, Barros said, for the most part those facilities are finding new logistics tenants.
He noted that the former Stitch Fix facility on Hanoverville Road in Bethlehem just went on the market, and he expects that it will quickly find a new tenant.
Right now, he said much of the activity has been companies consolidating their warehousing faculties, or upgrading to newer, more modern facilities because there is more choice on the market.
“It’s been a flight to quality over the last six months,” Barros said. “They’re looking at newer construction now that there’s time to think it through.
Third Party Logistics, or 3PL, continues to remain the dominant force in warehousing and logistics.
Barros noted that with national and global events leading to market uncertainty, it’s much easier for a company to sign a short-term contract with a 3PL provider, than to lease and operate space on its own until it better knows what its future needs will be.
Meanwhile, rents remain at record highs.
The average contract rent in 2020 was $5.09 per square foot, but rent is currently an average $9.50.
That’s an 87% increase over the last five years
While, landlords aren’t offering much in the way of rent reductions in light of higher vacancy, they are offering other incentives such as shorter lease terms or facility upgrades to get new tenants into a property faster.
One factor that is impacting the logistics market in the Lehigh Valley is the lack of new buildings coming to market.
Developers are limiting new construction starts due to vacancy rates and development constraints, mitigating the risk of future oversupply.
