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2020 North America Industrial Big Box Review & Outlook

Southern New Jersey/Eastern Pennsylvania
March 22, 2021

“The Philadelphia and I-78/I-81 Corridor industrial markets are centrally located in the Northeast, allowing for one-day access to millions of consumers. Demand outpaces supply in every submarket. There has been an aggressive shift in consumer buying patterns with the food & beverage and home furnishings categories leading the charge. As a result, both private and institutional investors are increasingly attracted to the region’s industrial & logistics sector.”
Jake Terkanian – Senior Vice President, CBRE Philadelphia

Demographics

More than 8 million people live within 50 miles of the market core, expanding to 60 million within a 250-mile radius—the second most in the U.S. Population growth is expected to be much lower compared with Sun Belt markets, averaging 1.7% in the next five years.

Figure 1: Southern New Jersey/Eastern Pennsylvania Population Analysis

Source: CBRE Location Intelligence.

According to CBRE Labor Analytics, the region’s warehouse labor force of 190,457 is expected to grow by 13.4% over the next decade. The average wage for a non-supervisory warehouse worker is $14.84 per hour, 5.5% above the national average.

Figure 2: Southern New Jersey/Eastern Pennsylvania Warehouse & Storage Labor Fundamentals

Source: CBRE Labor Analytics.
*Median Wage (1 year experience); Non-Supervisory Warehouse Workers (forklift, warehouse workers).

Location Incentives

Over the past five years, there have been 452 economic incentives deals totaling more than $1.7 billion at an average of $37,587 per new job in the Philadelphia metropolitan area, according to Wavteq.

According to CBRE’s Location Incentives Group, the top incentive programs offered in metro Philadelphia is the Job Creation Tax Credit (JCTC), which provides corporate income tax credits to companies that create at least 25 new jobs or expand existing employment by 25%. The tax credit ranges from $1,000 to $3,000 per employee for each new job created.

The state of New Jersey recently enacted new legislation under the Economic Recovery Act of 2020 that replaces the Grow NJ program. This new program provides state corporate income tax credits for new and retained jobs for up to seven years. Target industries must create at least 25 net new full-time jobs, and non-targeted industries must create at least 35 net new full-time jobs.

Figure 3: Southern New Jersey/Eastern Pennsylvania Top Incentive Programs

Source: CBRE Location Incentives Group.
Note: The extent, if any, of state and local offerings depends on location and scope of the operation.

Logistics Driver

The region is centrally located along the East Coast, with access to three major ports: The Port of New York and New Jersey, the Port of Baltimore and the Port of Philadelphia. Two Class 1 railroads serve the region: Norfolk Southern and CSX. The region has 100 major interstate interchanges and direct access to several international airports that make it one of the top air cargo markets in the country. Lehigh Valley International was ranked the fastest growing cargo airport in the U.S. by Airports Council International in 2019.

Capital Markets


"As a result of positive operating fundamentals in Philadelphia and the PA I-78/I-81 Corridor’s robust demand, the region is attracting significant interest from institutional investors and private equity funds. Cap rates for Class A core properties were in the +/- 4.5% range, but the next large core profile property should achieve a low-4% cap rate. The region will continue to garner outsized investor demand and pricing and should remain a solid performer."
Michael Hines – Vice Chairman

Figure 4: Cap Rate Comparison

Source: CBRE Research.

Supply & Demand

With 470 million sq. ft. of total inventory, Southern New Jersey/Eastern Pennsylvania is the second largest big-box region in North America. The I-78/I-81 Corridor still has a significant amount of land for development, where nearly 20 million sq. ft was built in 2020. Developers are constructing at breakneck pace to keep up with robust demand totaling 41.8 million sq. ft. in 2020.

Despite the large amount of development, the direct vacancy rate dropped by 30 bps year-over-year in 2020 to 6.6%. Another 25.2 million sq. ft. is currently under construction, the most in North America.

Figure 5: 2020 Occupier Transaction Market Share

Source: CBRE Research.

Figure 6: Transaction Volume

Note: Includes new leases, renewals, and user sales transactions 200,000 sq. ft. and above.
Source: CBRE Research.

Figure 7: Big Box Year-Over-Year Comparison

Source: CBRE Research.

Figure 8: Under Construction vs. Preleased

Source: CBRE Research.

Figure 9: First Year Taking Rents (psf/yr)

Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research.

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2020 North America Industrial Big Box Report & Outlook

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Contacts

James Breeze
Senior Director, Global Head of Industrial & Logistics Research
Research
+1 602 735 1939
Matt Walaszek
Director of Research
Research
+1 312 297 7686
John Morris
Executive Managing Director, Americas Industrial & Logistics Leader
+1 630 573 7020
Richard Barkham, Ph.D.
Global Chief Economist, Head of Global Research & Head of Americas Research
+1 617 912 5215
Spencer Levy
Global Chief Client Officer and Senior Economic Advisor
+1 617 912 5236