Delaware Industrial Market

Mark Chubb,
Senior Associate,
Colliers Lanard & Axilbund

In central and southern Delaware, the industrial market is saturated, creating terrific opportunities for companies to procure quality space, thus capitalizing on significantly low rental rates and operating expenses. However, in the northern portion of the state, New Castle County, Delaware, the industrial market is severely constrained due to lack of land. Since 2000, annual development levels have totaled less than 500,000 square feet, despite the fact that speculative developments constructed during that time have been leased relatively quickly. Developers fortunate enough to hold land likely will consider construction of new projects as supply tightens and rental rates are expected to increase. Rental rates in New Castle County currently range from $4 per square foot to $4.75 per square foot, and the vacancy rate stands at 10.2 percent.

The only significant development project added to the New Castle County industrial market in 2005 was Mattei Corporation’s 189,000-square-foot speculative building located in the Pencador Corporate Center. Due to the company’s success in leasing the project, Mattei has decided to move forward with another speculative structure at Pencador that will encompass a total of 184,000 square feet. The building represents the only direct availability of Class A industrial space more than 100,000 square feet in the entire county, so it likely will benefit from the tight market constraints. Since the project is the only development underway and guaranteed for 2006 delivery, it should lease easily and not have a major impact on the industrial sector.

In addition, however, Harvey Development has a pad site approved for 400,000 square feet in Twin Spans as well as a 100,000-square-foot pad at the Delaware River Industrial Park, both of which could be developed within the next year.

The majority of industrial development is taking place in New Castle and Newark, Delaware, which are the epicenters of industrial product within the state. In recent history, much of the development has taken place in the incorporated areas of New Castle County, where municipalities have their own land use and development laws; thus, these areas can be more responsive to developers’ needs and provide quicker approval than is possible in unincorporated areas, which are subject to New Castle County’s development code.

Though the Delaware industrial market has attracted attention from national and institutional investors, most of the developers in the sector are locally based. The most prolific companies in the area are Harvey Development Company, Mattei Corporation, McConnell Johnson and Emory Hill.

In general, the average-sized tenant is seeking approximately 30,000 square feet to 100,000 square feet, utilizing space for warehousing, distribution, light assembly and product fulfillment.

Demand for industrial space in New Castle County is largely driven by the major employers: automotive, chemicals and financial services. GM and Chrysler both have been significant drivers of the economy for other industrial and warehouse users such as manufacturers, in addition to having their own major assembly plants. DuPont and the state’s other large chemical companies are supported by suppliers of containers and testing equipment. In addition, the significant financial services industry in the region leads an influx of companies that need warehouse space to support the office sector, which include document storage, data storage, disaster recovery and fulfillment/direct mail organizations. In Kent County, Delaware, the industrial market is driven by the local manufacturing base located in and/or near Dover, Delaware, which includes operations for Kraft Foods, Playtex Products, Proctor & Gamble, ILC Dover and Hirsh Industries. The main influence on industrial activity in Sussex County, Delaware, is the agricultural industry.

In the future, the submarket that will have the most effect on the Delaware industrial sector is Cecil County, Maryland, which has been very aggressive in attracting new companies through incentives such as enterprise zones. Enterprise zones offer significant property tax savings and fast-tracked development time frames. Most importantly, though, there is land available for industrial development in this area, where companies such as General Electric, TNT Logistics, Burris Logistics and IKEA have located.

Overall, the Delaware industrial market should continue to tighten as the development pipeline is not oversupplied. As this trend follows, rents will tick up and concessions as an inducement to lease will be less common.

— Mark Chubb is a senior associate, industrial, with Colliers Lanard & Axilbund.

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.

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