Is the Lehigh Valley’s warehouse boom slowing? Here’s what a new report shows.

Market fundamentals for warehouses and other industrial buildings in the Lehigh Valley and most of eastern and central Pennsylvania are returning to pre-pandemic numbers, according to the latest report from commercial real estate company CBRE.

In the first quarter of 2024, leasing activity in Pennsylvania’s I-78/81 corridor was slow as limited construction kept the vacancy rate at 6.4% between January and March, the report said. The corridor includes the Valley, along with the northeastern and central parts of the state.

In the Lehigh Valley, the rate was 4.2% in Lehigh County and 10.5% in Northampton County. Inventory was 64 million square feet in Lehigh and 52.5 million in Northampton.

“Leasing was somewhat muted this quarter, marked by a few large leases driving activity,” CBRE said, noting that activity was mostly in central Pennsylvania. “But the construction pipeline had been constricting starting in mid-2022. The resulting low levels of deliveries coupled with modest net absorption left the vacancy rate unchanged at 6.4% quarter-over-quarter.”

The completion of some 1-million-square-foot buildings was offset by the net absorption — the sum of square feet occupied, minus the sum of vacant square feet — of equal scale, CBRE said. Developers are realigning with market demand, the report said.

It’s a stability that hasn’t been seen since the five years leading up the pandemic. However, the construction pipeline was smaller than pre-pandemic averages, CBRE said, and it should remain that way for the near future.

For the Lehigh Valley, only Northampton had 853,798 square feet of completed construction and 1.6 million square feet under construction, while Lehigh County had none in both categories.

Overall, the corridor had 8.3 million square feet under construction, which has been on a steady downward trajectory since the second quarter of 2022, when there was about 40 million square feet of construction. The bulk of the early 2024 construction was in central Pennsylvania which was just under 4 million square feet.

For year-to-date net absorptions, the Lehigh Valley had almost a negative million square feet. Higher absorption rates usually mean demand may be high enough for more development and lower absorption periods mean fewer construction projects.

The numbers align with what the Lehigh Valley Planning Commission has been reporting.

Going back to December , the LVPC reported it had reviewed zero square feet for warehouses. Through the first quarter, it had reviewed more than 556,000 square feet of non-residential development, including 422,760 square feet for warehouses in March.

Higher interest rates, which are around 7%, have played a role in the industrial construction slowdown nationwide, according to Coldwell Banker Commercial.

“Commercial mortgage rates have roughly doubled over the past year, while land prices haven’t fallen sufficiently to offset this increase, making construction financing increasingly challenging,” the report said. “Additionally, steeper interest rates have led to a decline in property values, with Green Street estimating a 16% drop in industrial real estate prices from their peak. Rising vacancy rates further exacerbate the situation as some e-commerce firms reduce their leasing activity, intensifying competition among landlords and discouraging developers from breaking ground on new projects.”

Rents remained mostly unchanged. The average asking rate per square foot was $11.59 in Lehigh County and $11.67 in Northampton. The Valley’s rates were the most expensive in the corridor as central Pennsylvania was at $7.90 and the northeast was $6.81.

Berks County, which is considered part of the Lehigh Valley by CBRE, had an inventory of 40.5 million square feet, a vacancy rate of 8% and 234,830 square feet under construction. It’s YTD net absorption was about 2 million square feet, while the average rent per square foot was $9.50.

Morning Call reporter Evan Jones can be reached at ejones@mcall.com .