Occupier Transaction Volume Continues to Grow
In Q3, 6.3 MSF of new occupier transactions were completed, bringing the year-to-date total to 14.2 MSF, slightly elevated from the 14.1 MSF of transactions recorded over the same time frame last year. With sizable leases pending at the start of Q4, transaction volume in 2017 is likely to best the cycle-high of 15.9 MSF established during the previous year. Volume has increased every year since 2012, excepting 2015, a year in which supply was limited by a lower-than-average vacancy rate.
Pace of Deliveries Increases in Q3
Deliveries also hit a cycle high in 2016, making a brief lull in completions during the first half of 2017 more pronounced. Market inventory added close to 7 MSF this quarter, a record amount within a single quarter. With more construction starts compared to the previous year, new supply is poised to keep pace with the steady growth in occupier demand.
Vacancy Stays on Trend
The vacancy rate, 5.38%, gained 138 basis points over the quarter, an increase not unexpected given the amount of new speculative product completed during that time. For the previous three years, the market vacancy rate has fluctuated between peaks of no more than 6% and a low of 3.5%.
Asking Rate Growth Moderates Following Big Gains in Q1 & Q2
The market average increased incrementally from $4.93/SF to $4.95/SF this quarter, though rates are up 4.5% since the end of 2016. In recent years, asking rental rates have been especially boosted by robust gains among new speculative offerings in the Lehigh Valley, but, after increasing more than 2.1% during Q2, asking rates held from the previous quarter. Asking rents in Central PA also remained steady, compared to mid-year. Northeast PA recorded gains of 1.8% during the quarter, pushing its year-to-date growth to 9.4%.
Activity Increases in Expansionary Zones
Notably, both occupiers and developers are increasingly active in a wider range of locations due to increased costs and a lengthening entitlement process near the traditional hubs. Change is most pronounced among large-format facilities. Seven projects over 750,000 SF are either planned or pending construction along the I-78 corridor between the well-established industrial neighborhoods in Harrisburg-Carlisle and Allentown-Bethlehem.