Q1 2023 Industrial Real Estate Report: Philadelphia, PA
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Philadelphia is renowned for its distinctive architectural style, characterized by rowhouses known as "Philadelphia-style" or "Philadelphia row homes."
Its major industries include healthcare, education, finance, pharmaceuticals, and information technology, contributing to its robust economy and employment opportunities.
So far, in 2023, the city's larger metro population has grown 0.5% to 5.785 million.
In Q1 2023, Philadelphia's industrial real estate market saw rents decline, positive absorption, and rising vacancies.
General Area Overview & Demographics
Situated in the state of Pennsylvania, Philadelphia is the sixth-most populous city in the country. It is a significant cultural, economic, and educational hub, attracting millions of visitors annually; yet, renters in the city still struggle to keep up with rent payments.
Philadelphia's Architecture, Culture, and Transportation
Throughout the centuries, the city played a pivotal role in America's history, serving as the nation's birthplace. The iconic Liberty Bell, housed in Independence Hall, symbolizes the city's historical significance as it rang to summon the first reading of the Declaration of Independence.
The architectural landscape showcases a blend of historic charm and modern innovation. The picturesque cobblestone streets of Old City captivate visitors with their colonial-era buildings while towering skyscrapers shape the city's dynamic skyline.
Notable landmarks such as the Philadelphia Museum of Art, its iconic "Rocky Steps," and the vibrant Reading Terminal Market highlight the city's diverse cultural offerings.
The city's cultural scene thrives with world-class museums, galleries, and performing arts venues. The Barnes Foundation showcases an impressive assembly of impressionist and post-impressionist masterpieces. Additionally, it is home to a vibrant music scene, hosting numerous festivals, concerts, and events throughout the year.
Its culinary scene is equally enticing, with a fusion of international flavors and local delicacies. The city's diverse dining options cater to every palate, from the iconic Philly cheesesteaks to farm-to-table restaurants. The city also boasts a thriving craft beer culture, with many breweries and beer gardens offering unique and flavorful brews.
Transportation within Philadelphia is convenient, with an extensive public transit system including buses, trolleys, and the Market-Frankford Line. The city's walkability and bike-friendly infrastructure make it easy for residents and visitors to explore its various neighborhoods and attractions.
Summary of Philadelphia Industrial Real Estate Performance in Q1 2023
Overall vacancies for Philadelphia's industrial real estate market increased from 3.0% to 3.6% quarter-over-quarter.
Gloucester County had the lowest industrial vacancy rate at 0.8%, while Burlington County presented the highest at 8.4%.
Net absorption was positive, recording 2.17 million square feet. Lower Bucks County accounted for nearly half at 1.01 million.
Gloucester County was the only submarket with negative absorption, with -180,000 square feet absorbed.
What are industrial real estate rents like in Philadelphia?
Average rents fell quarter-over-quarter from about $12.82 per square foot to $12.72 despite rising after Q3 2022 and throughout most of Q4 2022.
Delaware County posted the highest average at $16.51, the only submarket to see rents average over $15, while Upper Bucks County averaged $9.76.
Upper Bucks was the only submarket with industrial rents that averaged below $10.
Purchase & Leasing Activity
Overall sales volume for Philadelphia industrial real estate reached $160 million in Q1 2023. The average sales price increased to $120.87 per square foot.
Nearly 2 million square feet of space was leased by the end of the first quarter. Suburban Philadelphia accounted for 1.12 million, with the remaining spread across Southern New Jersey's submarkets.
Notable Industrial Real Estate Deals in Philadelphia in Q1 2023
There were several notable deals that took place for Philadelphia industrial real estate in Q1 2023:
- NexPoint Residential Trust acquired 172,000 square feet for $21.26 million.
- Elegant Furniture and Lighting Inc. acquired 170,000 square feet for $13.65 million.
- IK Marketing leased out 98,600 square feet.
- Associated Marketing leased out 85,700 square feet.
These are select examples among other activity.
New Industrial Real Estate Development Activity in Philadelphia in Q1 2023
Nearly 4.2 million square feet in deliveries hit the market in the first quarter of 2023. Burlington County alone accounted for more than half (2.2 million square feet) of that space.
At the close of Q1 2023, 16.9 million square feet of industrial product remained in the pipeline for development. Burlington County takes up the lion's share of that number at 5.3 million, while Salem County sits at 2.6 million.
Market Forecast for Philadelphia's Industrial Real Estate Market
It's reasonable to assume that rental rates will steadily climb, supported by robust tenant engagement across the area, thanks to the market's solid foundation.
Although there might be a slight increase in vacant properties, the arrival of pre-committed projects throughout the year could mitigate this trend.
The Philadelphia region is primed for further expansion, leveraging its advantageous position and thriving workforce to sustain ongoing tenant demand.
Takeaways for Industrial Real Estate Investors
While some key performance indicators show Philadelphia's industrial real estate market weakening from Q4 2022 to Q1 2023, the city's strong market fundamentals should keep it afloat.
Do your research, stay diligent, and happy investing.
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