‘It’s a landlord’s market’ Industrial rents at record highs

Industrial rents in the Lehigh Valley are at historic highs, and, while the region may still be a relative bargain compared with New York and Philadelphia metros, tenants are feeling the pinch.

In a recent interview, Jody Marcon, president and CEO of Marcon Industries, said increasing industrial rental rates inspired his company to build their own manufacturing and warehousing facility in Allentown.

And it doesn’t look like any relief is on the horizon, according to Kevin McGowan, president of Corporate Reale Estate Advisors in Allentown.

“They definitely will continue to grow,” McGowan said. “It’s a landlord's market.”

McGowan said on average, Lehigh Valley's metro rents command a baseline market rent of $8.70 per square foot, while 4- and 5-Star facilities command closer to the $11 per square foot and $12 per square foot range.

Again, the market is still highly affordable compared to some surrounding metros.

In the Northern Jersey market, as a baseline, rents average $15.70 per square foot; New York City averages $19.70 per square foot; and Philadelphia averages $11.10per square foot.

McGown said that means Lehigh Valley is geographically well-positioned to capture spillover demand from companies seeking to relocate operations to cut expenses.

While demand for space has softened in recent quarters after hitting record levels in the past few years, construction is also down, leaving a smaller pool of sites to choose from.

“Demand may not be crazy over the top, but it still exceeds supply,” McGown said. “While it probably has plateaued, at least for now, rents have ground about 55% since 2020.”

And while the larger properties tend to get the most attention, and remain a strong point of demand, McGown said right now smaller industrial footprints can command an even higher rent per square foot.

He gave the example of DW Services recently leasing 3,000 square feet of flex space at 2670 Lehigh St. in Whitehall for $12.50 per square foot triple-net, with common area maintenance (CAM) expenses totaling $3.50 per square foot.

Also, Remco recently leased 7235 Penn Dr. in Allentown, a 2-star, 18,780-square-foot warehouse, for a starting rent of $11.32 per square foot modified gross.

McGown said Lehigh Valley remains a compressed industrial market with a 6.3% vacancy rate, hovering below the national average of 6.5%.

He did say that the market has softened in some parts of the country and there have been pockets of rental rate decreases, but he doesn’t expect that locally.

Looking ahead, with the prospect of industrial development being curtailed by local regulations, Lehigh Valley industrial rents are likely to remain high for the foreseeable future, McGown said.

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