Construction Intensifies Along Shenandoah Valley

The spring season ushered in an uptick in construction along the Interstate 81 corridor with most heavy absorption slated for later in the year. Market fundamentals remained stable as developers and owners remained busy with existing construction projects.

Just south of the Procter & Gamble campus in Martinsburg, Equus Capital Partners broke ground on a 356,000 square foot distribution facility off Development Drive that will be 50 percent occupied by Procter & Gamble when the building delivers later this year. Although only one building broke ground during the second quarter, construction numbers remain elevated with over 2.3 million square feet currently being developed. Notably, the construction consists of both developer controlled projects such as the 287,000 square foot build-to-suit for Rubbermaid in Winchester as well as with design-build projects such as the FBI records facility in Winchester (250,000 sf), and Procter & Gamble’s multi-million square foot campus in Berkeley County, WV. Ground work has begun at Roxul’s manufacturing plant in Jefferson County, WV (450,000 sf) and is expected to commence in the next quarter.

Further south in Botetourt County, work recently finished on the 250,000 square foot build-to-suit for Italian Auto manufacturer Eldor Corporation, the only industrial facility that delivered during the quarter. With respect to new development slated for the corridor, Dallas based developer Trammell Crow is planning a speculative development project in Hagerstown, MD that will break ground on over a million SF in 2019. In Winchester, Johnson Development is rumored to have a 300,000 square foot prelease that will kick off development on their 32-acre site in the Fort Collier Industrial Park. In Harrisonburg, local developer Interchange Group recently purchased 25 acres from Equus Capital Partners for future industrial development.

Demand

Demand for industrial space in the Shenandoah Valley market remained positive with 444,654 square feet absorbed during the second quarter of the 2018. This was led by Eldor’s delivery and move in of 250,000 in the Botetourt, Virginia submarket. This brought the year-to-date absorption total up to 2.09 million square feet, led mostly by Procter & Gamble’s growth in Berkeley County, West Virginia. Warehouse product saw the bulk of demand, increasing 380,999 square feet for the quarter, while demand for flex totaled 63,685 square feet over the same time period.

Supply

There were six buildings under construction at the end the quarter, totaling 2.36 million square feet of space. During the second quarter, Eldor delivered 250,000 square feet. This building was fully occupied, and is located in the Botetourt, Virginia submarket. Procter & Gamble continued construction at their campus, with over a million square feet still underway at the end of the quarter. The FBI’s 256,000 square foot Central Records Complex, in the Frederick County, VA submarket is underway and will be fully occupied by the agency. Stonewall Industrial Park Phase III, a 287,000-square-foot building is also underway in the Frederick, VA submarket and should deliver during the third quarter of this year. This building was leased entirely by Rubbermaid.

Vacancy

The market’s overall vacancy fell, dropping from 5.7 to 5.5 percent during the quarter. Vacancy rates dropped 20 basis points to end at 5.3 percent in the warehouse sector while the flex sector ended the quarter at 9.2 percent. The class A vacancy rate dropped 20 basis points, end the quarter at 7.2 percent.

Rental Rates

Overall asking triple net rates in the Shenandoah Valley market have increased during the quarter, rising $.05 to end the quarter at $4.26 per square foot. This compares to a year ago when the rental rate stood at $4.12 per square foot. Overall average rental rates for warehouse product increased $.11 to end the quarter at $4.14 per square foot while rental rates for Flex remained flat, ending the quarter at $5.36 per square foot. Class A warehouse product is seeing rates closer to $4.50 per square foot in the market.