E-Commerce Pushes PA Industrial
Industrial fundamentals are incredibly sweet: Rental rates are rising, cap rates are compressing, and leasing velocity is double peak market activity. The main reason: e-commerce. (E-commerce is also the main reason people don't need to shower on the weekends.)
Speakers at Bisnow's 4th annual Philadephia Industrial Summit on Tuesday agreed e-commerce companies are looking hard at eastern Pennsylvania as a US hub, particularly the I-78/81 Corridor. About 50% of absorption in the last year in the region has been by e-commerce companies. Pictured: Pureland Group partner Charlie Walters, who has developed about 17M SF of space.
Endurance Real Estate Group president Ben Cohen, who focuses on bulk distribution and small-bay flex space in greater Philly and the I-78/81 Corridor. E-commerce firms are looking for centrally located properties near the northeast population centers for ever-faster delivery requirements, the speakers explained. Food companies and 3PL firms also have a strong interest in eastern Pennsylvania, and are helping drive positive absorption. Developers are responding, mainly build-to-suits, but also spec.
MRP Industrial principal Reid Townsend; his company was founded last summer, and has about an 8M SF pipeline now, breaking ground on four more projects in the next 60 days. Panelists also noted that the e-commerce hunger for distribution space is driving demand for smaller properties, such as 250k SF buildings. It’s easier to do next-day delivery in those kinds of facilities than the 1M SF or 2M SF megacenters developed in the ’90s or later (though the Amazons of the world might want buildings that big).
Cushman & Wakefield senior director Gerard Blinebury, whose brokers cover about 60M SF of build-to-suit land and 7M SF of existing product for sale or lease. Our speakers explained that the warehouses of today aren’t like those of even 15 or 20 years ago--the technology that underpins operations within the properties is much more sophisticated to accommodate the demands of e-commerce operations.
Liberty Property Trust SVP Jim Mazzarelli, who runs the company’s East Coast office and industrial properties--now more industrial than ever before, he says. Industrial is on fire all along the East Coast. In Liberty’s case, 70% of its $300M development pipeline on the East Coast is pre-leased: not just build-to-suits, but some spec, such as an 800k SF building in Bethlehem that was taken by a single tenant.
Drinker Biddle & Reath partner Chris Boyle, who moderated. Even in a market with strong fundamentals, our speakers noted, industrial development finance isn’t as freewheeling as it was 10 years ago, when spec industrial development might have been as much as 80% leveraged. Now 60% to 65% leverage is more common, with the rest of the capital stack being equity from deep-pocketed investors—a much more sustainable model.