Key Takeaways

Steady Market Growth

The Eastern PA market grew 4% in the first three quarters of 2018 with each of its three submarkets observing positive absorption. Year-to-date net absorption totaled 8.5 MSF. YTD absorption was greatest in the Central PA/I-81 South submarket, at 4.1 MSF.

Solid Annual Transaction Volume Though Moderate in Third Quarter

In the third quarter 2.6 MSF of new occupier deals completed, bringing the YTD total to just under 10 MSF. At this time last year, 13.6 MSF of new deals had completed. Despite a relatively quiet Q3, the market’s occupier pipeline remains robust. Several large deals, 1 MSF or greater, were pending at the end of Q3 18. By year end, transaction volume is expected to reach 15.6 MSF.

Construction Starts Elevated Over Previous Years

The volume of construction starts has grown each year since the start of the current market cycle. At Q3’s end, year-to-date construction starts measured 11.2 MSF and 22% of that new inventory was build-to-suit or leased. Annual starts are expected to reach 18.6 MSF by the end of the year, an increase over the 16.1 MSF of starts recorded in 2017.

Vacancy Rates Up, Though No Downward Pressure on Asking Rents

Over the course of the year, the vacancy rate has risen from 6.34% to 7.31%. Most of the increase was driven by new supply along the Berks County section of Lehigh Valley’s I-78 corridor. Despite the supply increase, the market’s weighted average asking rent remained stable.

New development redefines the Lehigh Valley/I-78 Corridor

Statistically, the Lehigh Valley submarket includes Berks, Lehigh & Northampton counties, though historically 87% of big-box inventory was concentrated along the Lehigh and Northampton section of I-78 & Rt. 22. With demand for developable sites in the submarket’s historic core persistent and supply tight, development has moved westward into Berks. Since 2017, Berks has seen 6.6 MSF of speculative construction starts, and now accounts for 70% of the submarket’s available square footage, existing or under construction. While the submarket’s boundaries have not changed, the geographic extent of its inventory has.