NORTHEAST SNAPSHOT, MARCH 2009

York / Harrisburg, Pennsylvania Industrial Market

The tri-county area that encompasses the cities of York, Harrisburg and Lancaster is known for its industrial presence. The Harrisburg area has many distribution users, thanks in large part to the ease of access interstates 81 and 83 provide to major East Coast cities. York and Lancaster tend to focus more on manufacturing, with York specializing in the food and military industries. Many other industrial companies call the area home, and a brief glimpse shows the industrial sector is a major player in the region. While new development is occurring, the pace of it has slowed down considerably.

"York and Harrisburg are like pretty much everyone else; they have put the brakes on and they are taking a position of waiting to see what drops out the bottom,” says David Keech, president and partner with ROCK Commercial Real Estate in York. “Anyone who is forging ahead is doing so because they were past the point of no return in a development project.”

Some notable projects in the pipeline include Arm & Hammer’s new 1.1 million-square-foot production facility that broke ground west of York along Route 30 in the second half of last year. The facility, which will mark Arm & Hammer’s entry into the York market, is under roof right now. It will be expandable to almost 2 million square feet. Additionally, a food distribution plant is currently under construction between York and Harrisburg. More than 750,000 square feet are under roof, with another 300,000 square feet to go. This facility will also be expandable up to 2.1 million square feet. Other projects include a 260,000-square-foot, cross-docked facility that is going up along the I-83 corridor, as well as a 675,000-square-foot building that was built between York and Harrisburg by First Industrial Realty Trust. The facility is being leased by United Natural Foods.

When fuel prices rose last year, people started looking at whether it would be more cost-effective to ship products to West Coast ports and truck them east, or ship them over to East Coast ports and warehouse them there. The York/Harrisburg market was a beneficiary of this increased interest in warehouse product.

“As a result of that, we did get the benefit of a number of large warehouses that were built in York and Harrisburg by logistics companies and REITs that are over a half-million square feet. Some of them may be wishing they had not done that, but those that are stronger are not,” Keech says.

He adds, “I think they’re going to find that it is a smart way to operate. You can’t depend on fuel prices. I think you’re going to find it to be the case that they have East Coast and West Coast distribution points and we will benefit from that.”

He adds that these facilities were built on spec with the tenant in mind, but some of them backed out once gas prices fell, leaving space to fill. He does not think this will be a problem for the market, though.

“I think we’re not over-built. I think we’ll end up with those getting filled in the next year to two,” Keech says, adding that in the long-term the area is actually under-supplied. A recent study concluded that York County is going to need 3 million square feet of Class A warehouse space on the I-83 corridor over the next 10 years. The corridor currently has less than 1 million square feet.

This prediction has made the I-83 and I-81 corridors the hot spot for future development. Zoning and government regulations are favorable for development, and the corridors offer easy interstate accessibility. This forecast is causing some to go ahead and build in the area as a way to hedge their bets on demand that will exist down the line.

“And those are the people who are going to hit home runs,” Keech says.

The York and Harrisburg area has been able to maintain a steady stream of large deals in the last year, even in the face of uncertain times. In February 2008, the 1.6 million-square-foot York Business Center traded for $70 million. In April, a 735,000-square-foot grocery distribution center located in Harrisburg sold for $30 million. Finally, in September, Doubleday Publishing Groups’ 460,000-square-foot facility was purchased for $34 million.

Construction may slow down and deals may be fewer, but the York and Harrisburg markets are still maintaining activity. Keech sees fewer buyers in the market in the near-term, but says that the ones who are out there will be more serious about buying. Prices will also adjust as owners seek to fill vacancies in their buildings.

“We’re a very conservative area and I think you’re going to see us try not to get into the same trouble perhaps other areas of the country have gotten into. We haven’t over-built in the past and, as a result, people are concentrating on filling their spaces,” Keech says.

— Coleman Wood

©2009 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.