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  • Writer's pictureE.R.Cornwell

Lehigh Valley: The Small-Bay Shortage

Lehigh Valley has witnessed impressive growth in mega-leases by renowned companies like Shopify, Nike, and others in recent years. However, amidst the headlines surrounding these large-scale leases, a lesser-known segment of the industrial property market has been overlooked. Small-bay industrial facilities, measuring 50,000 square feet or less, are experiencing a decline in vacancy and availability despite ongoing construction activities.

The availability of small-footprint industrial buildings in the market has steadily decreased, falling from 4.8% in the fourth quarter of 2019 to 4.1% by the end of the first quarter of this year. Although availability is slightly higher for warehouses exceeding 500,000 square feet, it remains limited at 6.3%. (Costar)

Smaller properties have witnessed the fastest leasing activity, with an average of 71 advertised spaces being leased within six months in the past year. This is a significant improvement compared to an average of seven months for 61 leases in 2020. In contrast, larger industrial spaces measuring over 100,000 square feet had an average leasing pace of 16 months for the 17 leases signed in the past year.

As expected, however, lease transactions for small-footprint spaces outnumber those for larger spaces. Over the past three years, properties above 100,000 square feet accounted for 65 leases, while properties below 100,000 square feet saw 229 leases. Notably, 204 of these leases were for spaces under 50,000 square feet.

The high volume and pace of leasing in the small-footprint industrial segment indicate strong demand, resulting in a scarcity of available spaces over time. Local distributors, manufacturers, and retailers have been the primary drivers of this demand in the Lehigh Valley region. However, despite these promising statistics, there is a lack of new construction catering to this market segment. Developers argue that constructing smaller industrial buildings requires similar resources and time as larger ones. Consequently, out of the 5.3 million square feet of new industrial inventory under construction at the end of the first quarter of 2022, only 1.4% (74,000 square feet) is being developed for properties below 50,000 square feet. No construction is currently underway for properties measuring between 50,000 square feet and 100,000 square feet.

While this shortage of new construction may relieve supply-side pressures for existing landlords, it intensifies the competition for smaller occupiers seeking suitable industrial supply. Finding appropriate industrial spaces becomes increasingly challenging due to the limited availability and high demand in the small-bay industrial market of Lehigh Valley.

We would like to thank Costar/B.Nguyen for data provided in this article. If you have any questions on the Lehigh Market or Industrial Investments please reach out to one of our team members. / 480-951-1212

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