In the suburban Philadelphia market, there is a trend never before known occurring: industrial asset rents are coming exceptionally close to office rates. During a BisNow event yesterday, some of the Mid-Atlantic market’s top industrial real estate players walked through their current experiences and future projections for commercial real estate’s hottest asset class.

Today’s environment presents a unique climate – acquisition time for construction materials has multiplied, shell costs are 60% higher on average, and Amazon leased on average 1M square feet per week in 2020. They have also purchased 30% of all available bar joist and steel in preparation for future locations.

What kind of space is most in demand and what does this mean for the road ahead?

All facets of the industrial classification are red hot: factories, distilleries, fulfillment centers, refrigerated warehouses, and other large-scale production facilities. Third quarter 2021 is showing consumer-facing product companies seeking industrial in our market most. With vacancies as low as they stand (3%), rents will likely continue to grow with demand at historic highs.

Another common thread is how to move the entitlement process forward with the “I don’t want those trucks in my backyard” mentality. Given the supply chain pressures apparent seemingly everywhere, one way to alleviate that supply/labor cost pressure is through the presence of warehouses. Ironically, those who don’t wish to have these facilities in the vicinity of their home are often the ones with an Amazon box on their doorstep.

Why is Philly different?

The airport, infrastructure, and proximity to I95 are incredibly desirable factors for industrial. The issue with Philadelphia is the lack of land supply. Also, the average age of industrial buildings in the area dates back to the 1950’s. With the proper construction, there is a recipe for tenants to accommodate physical users on site with an industrial product closer to their consumer and population base. Although the construction costs can currently seem unmanageable, panelists at the event assured attendees that tenants can absorb the costs when the proper transportation and labor force is present.

Pulling it All Together

The industrial market has been booming across the country, but it’s not free money like some of the new players entering the space believe. With the right balance of total landed cost between transportation, labor and real estate, the opportunity is there to thrive in the Pennsylvania and New Jersey region in industrial.