Philadelphia County Hardest Hit As Industrial Leasing Slides

PHILADELPHIA-Despite the closing of several significant transactions during first quarter 2004, “the sheer onslaught of space dumping within the nine-county Philadelphia region brought red absorption measures,” reports Matthew Guerrieri, research services manager of the local office of Grubb & Ellis. Of the 680,000 sf that was returned to the market during first quarter, 400,000 sf were in Philadelphia County.

Nevertheless, the industrial vacancy in Philadelphia County was 7.5% compared with a 9% vacancy for the entire region. Average asking rental rates in the country were $4.46 per sf for industrial space and $8 per sf for flex space. This compares with an asking average of $4.42 per sf for industrial, and $8.56 per sf for flex space throughout the entire region, which includes the Camden, NJ and New Castle, DE submarkets.

Guerrieri attributes the regional slide primarily to a lack of job growth. While the education, health, construction and retail industries gained approximately 14,000 jobs over the past year, he reports, manufacturing lost 8,800 jobs.

Just three Pennsylvania submarkets in the Philadelphia region–Delaware, Chester and Montgomery counties-–saw positive industrial absorption between Jan. 1 and March 31, and their respective vacancy rates at the end of that quarter were 11.6%, 4.5%, and 10.8%. Both Chester and Montgomery commanded the highest average asking rental rate in the area, $5.22 per sf, according to G&E. The average for flex space in Chester County was $9.44 per sf, and, in Montgomery County, the average for flex space was $10.41 per sf, the highest in the region for flex product.

At 12.7%, the vacancy rate in Gloucester County is the highest in the region. Asking rental rates for industrial space there averaged $4.04 per sf, and the average for flex space was $7.83 per sf. The asking rates in each of the Pennsylvania counties were higher than in Camden, where the average for industrial space was $3.80 per sf.

Looking forward in 2004, manufacturing activity is on the rise, according to Guerrieri, who cites a report from the Federal Reserve Bank of Philadelphia. “The region’s manufacturers anticipate improvement in business conditions over the next 180 days,” he says.