Amazon and P&G set to Occupy Large Blocks as Construction Remains Strong
The summer months of 2017 ushered in a brief lull in leasing activity along the Mid-Atlantic of Interstate 81 as massive construction projects for Procter & Gamble and Amazon continue to make headway in Berkeley County, WV and Frederick County, VA, respectively. In anticipation for the holiday rush, Hillwood has already delivered portions of Amazon’s new 1 million square foot e-commerce distribution center in Clear Book, VA with the remainder of the facility set to deliver before the year’s end. Procter & Gamble continues work on Phase I of their massive new manufacturing campus in Martinsburg, WV which should see 1.2 million square feet deliver this winter.
In Winchester, Equus broke ground on Phase III of their Stonewall Industrial Project which will see a new 287,000 square foot speculative distribution warehouse facility deliver this upcoming Spring of 2018. This comes as Equus closes on a 19-acre site on the southern end of Frederick County that will see another 250,000 square foot speculative warehouse project break ground in March or April of 2018. The Stonewall project combined with Amazon’s new distribution center brings the amount of under-construction warehouse product in Frederick County, VA to over 1.3 million square feet. This number will again increase once work begins on the FBI’s new 256,000 square foot Central Records Complex off Route 50 on the east side of Winchester.
The northernmost portion of the Mid-Atlantic region around Hagerstown, MD is still struggling to compete with West Virginia and Virginia to the south as two corporate tenants pull out of the area. This quarter Kelloggs vacated 215,000 square feet at 11841 Newgate Blvd in Hagerstown, a full three years ahead of their lease expiration, increasing the vacancy rate for Washington County, MD from 5.8% to 7%. Volvo is also expected to vacate some 150,000 square feet at 18212 Shawlee Drive in Hagerstown before the year is out. Still, what warehouse product remains available is for the most part institutional-grade facilities controlled by reputable developers and private equity firms.
To the south in Botetourt County near Daleville, work continues on a 250,000-square-foot build-to-suit automotive parts manufacturing facility for Eldor Corporation that should deliver in early 2018 and bring over 600 manufacturing jobs to the Roanoke Valley.
In summary, construction remains robust along much of the corridor on both build-to-suit and speculative warehouse projects with leasing remaining relatively quiet as we head into the last few months of the year. Despite this, the year-to-date net absorption is above 2016 levels, rents are increasing, and vacancy, especially for Class A product, is stable in the single digits.
Demand for industrial space in the Shenandoah Valley market remained flat, growing 35,126 square feet during the third quarter of 2017. This brought the year-to-date net absorption total up to 1.26 million square feet. This marks the fifth straight quarter of overall positive net demand. Warehouse product saw a drop in demand, falling 23,307 square feet while flex saw a 58,433 square foot increase in demand during the quarter.
The market’s overall vacancy increased slightly, rising from 6.4 to 6.5 percent. Vacancy rates remained fairly flat in the warehouse sector rising from 6.4 to 6.5 percent. The flex sector decreased from 7.9 to 6.5 percent during the quarter.
Overall rent expectations in the Shenandoah Valley market have decreased slightly during the quarter, falling $.03 to end the quarter at $4.08 per square foot. This compares to a year ago when the rental rate stood at $3.90 per square foot. Rental rates for warehouse product fell $.07 cents to end the quarter at $3.95 per square foot. Even though a drop was witnessed, this rate is among the highest the market has seen. Rental rates for Flex product increased during the quarter, rising from $5.44 to $5.76 per square foot.
During the third quarter, no buildings delivered. One building broke ground during the quarter, Stonewall Industrial Park in the Frederick, VA submarket. This building will be 287,000 square feet when completed. There were five buildings were under construction totaling 2.75 million square feet of space. The largest building under construction, 5293 Tabler Station Road, a 1.07 million square-foot build-to-suit for Procter & Gamble in Berkeley County, is expected to deliver at the end of 2017. Amazon’s 1 million square foot distribution facility is under construction in the Frederick County submarket, which is anticipated to be ready for the holiday season in the winter. 500 International Parkway, a 250,000 square-foot build-to-suit is underway in the Botetourt submarket with an expected to delivery at the end of 2017. A 100,000 square-foot building was also under construction in the Warren submarket.