As brick-and-mortar retail slows and e-commerce grows, the Central Pennsylvania real estate market is experiencing increased opportunities for expansion and investment for suitable spaces in the industrial marketplace.
Since the concept and inception of e-commerce, we have witnessed emerging trends in the e-commerce industry that are driving demand for big-box distribution facilities in high-access geographies. Central Pennsylvania benefits from several convenient main travel arteries, and has become a prime investment region for investors and companies seeking distribution solutions that reach a broad employee base, and support transportation resources for larger distribution facilities.
We recently interviewed Kevin Hodge, a ROCK Industrial Brokerage Advisor, to explain the effects of e-commerce on the regional real estate market, and how it impacts demand for industrial real estate.
Business-to-consumer e-commerce has steadily increased, with sales growing from 0.8% of the nation’s Gross Domestic Product in 2009 to 1.96% in 2018. E-commerce sales crossed the $517 billion-mark last year – a significant 15% jump from 2017, and revenue is expected to grow by 7.8% by 2023, according to Statista. Additionally, e-commerce makes up 14.3% of the total retail sales – factoring out purchases that cannot be made online such as fuel and restaurants.
Those trends are shifting how developers assess the needs of the market.
“We are seeing a demand for larger big-box spaces ranging from half a million square feet to 1+ million square feet,” Hodge said. “While looking at a space, it is important to take into consideration the shape of the tract, its full utilization, accessibility to utilities and a growing emphasis on an available workforce. Property owners are now designing to allow for greater car parking and trailer spots to adapt to the e-commerce demands. Additionally, there is a greater emphasis on higher ceilings (40+ feet) to allow for greater flexibility.”
E-Commerce and Real Estate in Our Regional Industries
The response to the increase of e-commerce is evident in the volume of local warehouse construction currently underway.
“We are experiencing an overwhelming demand for e-commerce distribution facilities in our area to support the increasing demand for delivery of goods to the consumer,” Hodge said. “Being located on major interstates, including 83 and 81, and the ability to serve 40% of the US market and 60% of the Canadian population within a day’s truck drive, makes Central Pennsylvania the logistics sweet spot for these online retailers.
So, what are some of the major differences Central Pennsylvania is seeing in the region today versus a decade ago? “The difference between warehouses 15 years ago and today are dramatic. Then, owners were looking for a 200,000-400,000 square foot building and parking for 40 to 50 employees. Now, they are looking for 700,000-1,000,000+ square foot buildings and hundreds of parking spaces. Old warehouses were staffed by employees moving pallets of materials, whereas, with e-commerce employees are needed for receiving, retrieving, packaging, and preparing items for shipment.”
While retail continues to see challenges, the e-commerce sector is projected to continue growing. And it’s proven itself strong, even during slower economic times.
“For example, during the 2008 recession, e-commerce did not see a negative dip like retail stores experienced,” Hodge said. “As the demand for e-commerce continues to grow, there will be an increase in the labor force that needs to meet the demands of the market for fulfillment.”
By 2026, we are projected to see an 80% employment growth in the sector due to the rise of e-commerce. As the need for labor in fulfillment and distribution increases, owners and tenants are giving more consideration to the geographic location of warehouses, ensuring that they are centrally located to their labor pool.
A decade ago, owners concentrated on various regions outside of South-Central Pennsylvania. Today, they are shifting their focus to properties closer to the region due to a variety of factors.
“Owners are targeting more densely populated areas, rich with the necessary skills within the workforce. That is why the York, Harrisburg, Lancaster, Lebanon and Hanover regions are ideal locations; the added value is also our history in manufacturing,” Hodge said. “Whereas, places that are not located near densely populated areas are struggling to find the right labor force.”
How ROCK Commercial Real Estate Can Help
Tenants are actively looking for places to either expand or start their business. When looking for a new building, Hodge notes it is important to have a local brokerage advisor who understands your market and the regional marketplace.
“ROCK Commercial Real Estate is in tune with the local and regional nuances of doing business and breaking through red tape for growth and expansion. Additionally, we have an expansive knowledge base of the area and why a location may, or may not, work for the tenant’s specific needs,” Hodge said. “A broker located outside of Central Pennsylvania may gather data, but they will not have the local insights our team is so respected for.”
Additionally, a local brokerage advisor can help clients move through the approval process more efficiently. With established relationships within the community, ROCK Commercial Real Estate’s team is a go-to for tenants, property owners, and larger out-of-region firms seeking solutions specific to their clients’ immediate and long-term needs.
Are you interested in speaking with Kevin Hodge or our Brokerage Advisory team? Please email Kevin or contact us at 717-854-5357.