Warehouse boom alters landscape
Outside Lehigh Valley, what’s driving it, and what could slow it down
The string of cars made its way slowly up Route 901 just north of Minersville, Schuylkill County, as the tractor-trailer in front of them climbed the mountain toward its destination.
On top of Broad Mountain, in what’s considered the middle of nowhere in a mostly rural county, the 18-wheeler turned into Highridge Business Park. It made its way through the woods along a mostly flat but curvy country road with curbs. Every once in a while a driveway appeared, and the truck eventually turned into one of them, seemingly disappearing into the trees.
But a peek through the forest revealed a large warehouse. A careful glance up each of the drives revealed multiple distribution centers for familiar consumer brands such as Wegmans, Walmart, Lowe’s and Dollar General.
Highridge Business Park covers 2,000 acres in Butler, Cass and Foster townships in Schuylkill County. Opened in 1997, it was built on previously undeveloped land along Interstate 81.
It’s part of one of the busiest logistics corridors in the country. More than 482 million square feet of warehouses and industrial buildings dot the I-81 and I-78 corridors in eastern and central Pennsylvania, which includes the Lehigh Valley.
It’s no secret that the Lehigh Valley is running out of land to build these mammoth buildings that have continued to pop up in recent years
as consumer tastes have changed. Officials and residents in the Valley have expressed concern about the impact these buildings have had on their quality of life.
But what about in Schuylkill County and other places outside the Valley that are seeing their own warehouse boom?
Areas such as Northeastern and Central Pennsylvania have had their own challenges, and opportunities, with the boom in logistics that started growing in the last 15 years and accelerated during the COVID pandemic as consumers avoided brick-and-mortar stores. Even in remote areas, suitable land can be a scarce commodity. In other areas where space isn’t an issue, employers have trouble finding workers.
“There’s definitely some pockets where there’s a lot of development happening outside of the core Lehigh Valley,” said Jake Terkanian, senior vice president of commercial at real estate company CBRE. “There’s a concentration of development pipeline on 81 North in and around Hazleton. There’s a concentration of pipeline on the southern 81 corridor between Hagerstown [Maryland] and Chambersburg, and then there’s a concentration in York and on the east shore of Harrisburg and we’re starting to see some interest going north. And this is where I think there’s an interesting story here.”
In Schuylkill County, a city on the mountain
Frank Zukas, president of the Schuylkill Economic Development Corp., has been with the organization for more than 40 years, and has seen Schuylkill County slowly transform itself from an anthracite coal industry that had been in a long decline.
Since the 1950s, industries have made themselves at home in scattered small industrial parks around the county. Zukas said with Highridge, the idea initially was to bring in larger manufacturers to a larger park with direct access to I-81. He admitted that logistics never crossed his mind back then.
“We thought large-scale manufacturing is what we could support at that location, about 2,000 acres of property, and the very first tenant in the park ended up being a Lowe’s distribution center,” Zukas said.
“And I think that was the beginning of just a crazy growth and logistics that was happening. In 2000, we sold acreage to a developer out of Atlanta who put up a building in the park for logistics, followed by Wegmans in 2003 and Walmart in 2004. So all of it started the cluster after that.”
There are other, smaller warehouse parks popping up along the interstate, which runs along a ridge between Lebanon and Luzerne counties. That includes Frackville, which is using the site of the former Schuylkill Mall, Mahanoy City and Delano. Overall, Schuylkill County has a little over 16 million square feet of buildings with a vacancy rate of 3.7%, according to CBRE numbers. By comparison, the Lehigh Valley has 107.6 million square feet, with a vacancy rate of 5.1%
“So we haven’t displaced any kind of farming or agriculture in the process of doing the development along the 81 corridor,” Zukas said. “And while [Schuylkill Economic Development Corp.] had been really the moving entity for building things like the Highridge Park, all of a sudden with some large players in the game we began to be viewed as a market that you could get a good return on investment on when NorthPoint put the first of its large buildings up at Highridge and then flipped it within two years for $94 million.
“All of a sudden, everybody started to pay attention that these real sites are still sites where you can make some money investing, get a return on investment, and that really accelerated, in my opinion, some of the activity that we’re seeing right now, coupled together with the demand for distribution, logistics and fulfillment that came out of the pandemic,” Zukas said.
The county is about 770,000 square miles, and about three-quarters of it is undeveloped, wooded, mined or used for agriculture.
Zukas says that there’s not much room left beyond what’s either been developed or is already on the drawing board.
“Sites that were really easily buildable that had access to utilities are pretty much under development now,” he said. “So while there’s still a lot of open space, it’s open space that’s extremely isolated or extremely expensive to try to develop. All the good sites are pretty much gone.”
Poconos a hot market
About 26 miles from Highridge is one of the largest industrial parks in the state.
The Humboldt Industrial Park sits on about 2,600 acres on the edge of Hazleton, stretching about 5 miles down Route 924 from its intersection with I-81. The park has its own hotel and restaurants, 14.3 million square feet of buildings, 43% of which is manufacturing, and employs more than 10,000.
That’s about a third of the industrial building inventory in Luzerne County in Northeast Pennsylvania. That region includes not only the Scranton/WilkesBarre area, but also Carbon, Monroe and Schuylkill counties. Overall, it has 86.7 million square feet.
CBRE’s Terkanian said the Pocono region will be the next hot area for the parks as both the I-80 and I-84 corridors are getting interest from developers.
“Part of that is because of how tight the Lehigh Valley is, and partly how tight Northern New Jersey is,” he said. “When you look at the map, from an eastwest perspective, 80 and 84 connect into the Northeast pretty well and the road takes you right into the port, right into Manhattan, and brings the port right there.”
A lack of supply in northern New Jersey forced developers to move farther west along I-80. The River Pointe Commerce Park in Upper Mount Bethel Township is among those projects, though it’s technically in the Lehigh Valley.
Terkanian said developers are willing to level mountains and extend utilities to build facilities such as Centerpoint Commerce & Trade Park between WilkesBarre and Scranton, which was developed by Robert Mericle.
“So he’s no longer the only player out there and now we have a whole bunch of institutions that have gone up in Northeast PA to compete with him,” he said. “And it’s become institutionally acceptable, and that’s really more of a recent dynamic. Northeast PA for decades was not an institutionally acceptable market, but has become one in the past five to seven years.
“There was a whole bunch of ground tied up with institutional developers and they were not getting comfortable with that because land valuations there are so far beneath Lehigh Valley and Northern New Jersey and the rents are such that it can support a land value that requires a lot of site work,” he said.
Low jobless rate a curse?
With plenty of flat land and access to three interstate highways, the area around Harrisburg has been a transportation hub for logistics companies for decades.
“We’re a very popular area for distribution centers, just logistically of how accessible it is to get to many of the cities in the United States,” said Aaron Jumper, public relations manager for the Cumberland Area Economic Development Corp. “You can get to two-thirds of the United States from a 10-hour drive from where we live. It’s going to continue to be a place where distributors want to be. I don’t know if we’ve reached the point where there’s no land available, but certainly, land developers and township planners need to be selective of just where we’re choosing it.”
Central Pennsylvania has more than half the square footage — almost 252 million — in the region, and 13 million more is under construction or in the pipeline.
The major park, Allen Distribution, is just west of Carlisle, Cumberland County. Tractor-trailers make their way to the complex from I-81 and the Pennsylvania Turnpike. The buildings take up 22 million square feet, about the same size as the industrial park at Route 100 and I-78 in Upper Macungie Township.
However, this area consistently has the lowest unemployment rate in the state. According to the state Department of Labor & Industry, the Harrisburg-Carlisle Metropolitan Statistical Area has a rate of 3.6% in August. By comparison, the Lehigh Valley was at 4.2%.
Jumper said that companies take a low unemployment rate, usually meant to be a positive statistic, into consideration when looking at possible warehouse locations and whether they can be fully staffed.
Some employers import workers from other sites and put them up in temporary housing to keep shipments on time during busy seasons.
“The biggest challenge that our distributors and warehouses are facing with the workforce is that we’ve kind of had such a low unemployment level,” he said, “and we want to always try to meet the workforce demands. It’s one of the toughest challenges now. We have an Amazon warehouse and we have some large warehouses, and it’s coming out of the pandemic.
“We had ones that have been flying employees in and having them stay at hotels because they could not fill workforce needs. And so that might actually be the biggest trigger for a slowdown is not the lack of space, but just the lack of employees,” he said.
CBRE’s Terkanian said the challenge for that part of the state is it’s farther away from ports in New Jersey and New York, as well as most of its better locations have been developed.
“The challenge for Harrisburg-Carlisle is that all the prime industrial real estate, most of it, has been consumed,” he said.
Developers have moved farther south toward York, Chambersburg, Franklin County, and the area just north of Mason-Dixon Line, Terkanian said, which has cheaper land, but farther from New York.
Looking ahead
One thing that’s clear is that developers will continue to scour the region’s landscape for suitable sites as demand continues.
“We’re fortunate and blessed to be in a position geographically to have 60% of the population base within one day as a truck driver,” Terkanian said. “You have the Lehigh Valley, Northeast PA and Central PA and it’s that trifecta of sub markets is in that zone. So that enables our market to just scoop up the growth of logistics.”
With rising interest rates, which could make it harder to secure financing, there could be a softening of the market in the near future. Some companies are already cutting back. Amazon has begun closing warehouses and canceling construction on new ones, because of too much space.
“We’ve already been in a supply-constrained market for some time,” Terkanian said. “And given the headwinds on the interest rate front and financing side, I think it’s going to be contributing to that supply constraint in the market. I don’t think we’re actually going to see the results of that constraint for probably another couple quarters.”
That means 2023 could be an interesting year for the industry.
“That’s something that we’re keeping an eye on pretty closely is some pockets that are extremely supply constrained, like northern New Jersey, southern New Jersey, Philadelphia, the Lehigh Valley, you know, those core and hypercore markets are very supply constrained,” Terkanian said. “This dynamic of what just recently happened [with interest rates], that killed a fair number of deals that were very early in the process. That kind unraveling over the past quarter is going to worsen our supply problems coming in.
“So it’s going to be interesting to see what happens.”