3 Things to Know About Philly Industrial

1) Demand flat this year

PPR senior real estate economist Shaw Lupton tells is that from a regional distribution standpoint, Philadelphia must increasingly compete for share of the tenant market with distribution hubs in nearby Edison, Lehigh Valley, and Harrisburg. From a local distribution standpoint, the Philly economy has been slow to recover coming out of the downturn. There was negative net absorption of about 1.8M SF in 2012, and Shaw predicts that this year the number will be closer to flat.

2) High-quality distribution has the edge

Space removals in 2012 helped keep vacancies in check. We saw negative-net supply that matched negative-net absorption almost foot- for-foot, Shaw says. Accordingly, the vacancy rate remained constant at about 9.8% in 2012. High-quality modern distribution buildings (built after 1990 and larger than 100k SF) form the only segment to have bucked the trend, seeing vacancies fall from 9.9% in 2011 to 8.4% in 2012 as the result of some major retailers and 3PLs taking down space blocks ranging from about 100k SF to 250k SF last year. (People are so picky about the finer things.)

3) Rents will edge up

Theres been little impetus for rent growth so far, but at least NNN asking rent gained about 0.9% in 2012. This year Shaw posits that that number will be slightly better, as market confidence continues to strengthen. Controlling for building quality, transaction pricing was flat-to-slightly negative on a dollar PSF basis in 2012. Overall pricing remains about 5.5% below its long-term trend, implying there are opportunities to acquire buildings below replacement cost. Pricing ought to firm up along with rents this year.