CBRE

Greater Philadelphia Industrial

www.cbre.com/research Fourth Quarter 2011

Quick Stats
Change from last

The Greater Philadelphia market realized positive absorption for the fourth quarter and the Central PA submarket lead the charge. Sustained market activity continued for the quarter as companies such as KimberlyClark continue to manage efficiencies through expansions and consolidations of business operations. Experiencing positive total net absorption for the majority of the year, the Lehigh Valley submarket posted negative total net absorption of 54K SF for the fourth quarter. For a region with over 38M SF of industrial inventory over 100K SF, this translates to companies moving between locations rather than entering or exiting the marketplace. In looking ahead, long awaited speculative construction has started to take shape as Griffin Land & Nurseries, Inc. begins building the Lehigh Valley Tradeport in Northampton County, PA. When complete, the two building complex will encompass 531K SF of warehouse distribution space, one of which will have direct rail access to the Norfolk Southern Rail. Overall, the Northeast PA submarket continues to see increased activity ending the fourth quarter with positive total net absorption. A tightening market in the Lehigh Valley will push tenants with requirements over 100K SF into this region. Moving into 2012, developers will begin to look for land acquisitions in preparation for build-to-suit and speculative construction projects, in an effort to meet the continued demand for big box product. New Castle County, DE finished 2011 with positive total net absorption of 485K SF. New

deals continue to close in this submarket, such as Nestles lease for 31K SF at Lisa Drive, New Castle, DE and Magcos 95K SF lease at 618 Lambson Lane in New Castle, DE. This submarket continues to serve the small to medium users, as there are currently less than a dozen properties that can accommodate a tenant over 100K SF. In Philadelphia County, PA, much of the aging warehouse space poses an opportunity for developers to rehab and convert properties into loft apartments or retail space. Even though this submarket finished the quarter with positive total net absorption, lack of quality space has pushed tenants and buyers to seek space in the suburbs. The suburban Bucks, Chester, and Montgomery, PA counties each contributed strong positive total net absorption helping to offset the negative total net absorption in Delaware County, PA. Fujirebio Diagnostics, Inc. renewed 39K SF of flex space at 201 Great Valley Parkway in Malvern, PA and AJA Associates purchased a 17K SF warehouse at 135 S. Whitford Road, in Exton, PA. Demand for prime, Class A large blocks of space in the Southern New Jersey submarkets is present; however, only 6 Class A buildings have available space over 100K SF. Heading into 2012, speculative construction projects will likely commence to fill the demand for Class A big box space. ICUP Inc., , a manufacturer of novelty clothing, barware and party games purchased a 97K SF facility at 1152 Malkress Road in Cherry Hill, NJ; an expansion and relocation from Bristol, PA.
Total Vacancy Rate DirectLease Rate Lease Rate
$3.95 $3.90 $3.85 Per Square Foot Per Year (NNN) $3.80 $3.75 $3.70 $3.65 $3.60 $3.55
Total Vacancy Rate (%)

Current Total Vacancy Rates Direct Lease Rates Total Net Absorption* Construction 11.1% $3.76 NNN 1.81M SF 2.79M SF

Yr.

Qtr.

* The arrows are trend indicators over the specified time period and do not represent a positive or negative value. (e.g., absorption could be negative, but still represent a positive trend over a specified period.)

Hot Topics
Puratos Corp., a Belgian baking company, will open a 171,000 SF facility in Pennsauken, NJ and is expected to add 40 jobs to the region. J.G. Petrucci Co., Inc. announced that SunOpta Food Inc. has agreed to a long term lease of 101,250 SF facility in Upper Macungie Twp., Lehigh Co., PA. Kimberly- Clark Worldwide signed a long term distribution center lease for 342,500 SF at 500 Independence Ave in Mechanicsburg, PA.

Total Vacancy vs. Average Direct Total Vacancy vs. Average Direct Asking Lease Rate Asking Lease Rate
16.0% 14.0% 12.0% 10.0% Total Vacancy Rate (%) 8.0% 6.0% 4.0% 2.0% 0.0% 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011

11.1% $3.76 NNN

2012 CBRE, Inc.

MARKET STATISTICS - 100,000 SF AND LARGER

Total Vacancy Rate 6.6% 13.3% 20.6% 11.4% 5.6% 7.6% 12.6% 7.1% 8.0% 14.8% 19.4% 7.4% 11.1% Total Availability Rate 8.5% 13.3% 20.6% 11.8% 5.6% 7.6% 12.6% 11.6% 8.2% 14.8% 19.4% 9.3% 12.0% 2011 YTD TOTAL NET ABSORPTION (SF) 1,336,286 79,019 720,938 1,374,897 62,197 (47,812) 68,752 1,707,647 514,781 485,146 904,970 535,532 7,742,353 AVG. Minimum ASKING LEASE RATE ($NNN/PSF/YR) $4.08 $4.06 $3.17 $3.55 $3.91 $4.10 $3.87 $3.76 $4.80 $4.19 $3.65 $3.96 $3.76

Submarket Bucks County, PA Burlington County, NJ Camden, County, NJ Central PA** Chester County, PA Delaware County, PA Gloucester County, NJ Lehigh Valley, PA* Montgomery County, PA New Castle County, DE Northeast PA*** Philadelphia County, PA Total

Inventory 27,260,087 21,422,027 15,459,223 148,681,066 12,375,101 11,061,762 15,556,126 38,301,492 32,644,365 12,661,494 36,027,536 30,066,630 401,516,909

Completions 0 0 0 0 0 0 0 0 0 0 0 0 0

Under Construction 0 0 0 972,000 0 0 0 1,709,473 0 0 108,800 0 2,790,273

Greater Philadelphia Industrial

MARKET STATISTICS - 10,000 TO 100,000 SF

Total Vacancy Rate 10.4% 16.8% 14.5% 10.4% 12.9% 10.8% 12.5% 10.5% 13.9% 12.8% 9.4% 8.7% 11.8% Total Availability Rate 10.8% 18.0% 14.7% 10.8% 13.4% 11.2% 13.2% 11.1% 14.3% 13.6% 9.4% 9.1% 12.3% 2011 YTD TOTAL NET ABSORPTION (SF) (323,567) (149,335) (185,925) 253,044 (137,387) 209,652 (12,764) (76,054) 143,240 (15,783) 53,002 112,097 (129,780) AVG. Minimum ASKING LEASE RATE ($NNN/PSF/YR) $5.97 $5.51 $5.88 $4.45 $8.29 $7.97 $5.31 $5.71 $6.61 $5.01 $3.66 $5.24 $5.74
Fourth Quarter 2011

Submarket Bucks County, PA Burlington County, NJ Camden, County, NJ Central PA** Chester County, PA Delaware County, PA Gloucester County, NJ Lehigh Valley, PA* Montgomery County, PA New Castle County, DE Northeast PA*** Philadelphia County, PA Total

Inventory 24,075,025 15,753,893 17,413,077 39,401,094 13,556,055 10,539,123 10,103,173 20,115,435 24,089,974 16,428,925 8,865,143 21,840,687 222,181,604

Completions 0

Under Construction

0
0 0 0 24,858 0

0
0 0 0 0

29,838 0
0

0 0
0 0 0 0 24,858

0
0 108,137 137,975

* Lehigh and Northampton Counties ** Cumberland, Dauphin, Franklin, Lancaster, Lebanon and York Counties *** Carbon, Lackawanna, Luzerne, Monroe and Schuylkill Counties

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2012 CBRE Inc.

Economic Conditions Unemployment Rate - Seasonally Adjusted

12.0% 10.0% Unemployment Rate (%) 8.0% 6.0% 4.0% 2.0% 0.0% 2005 2006 2007 2008 2009 2010

PA NJ DE

7.9% 9.1% 7.6%

PA NJ DE

Total Vacancy & Net Absorption

Total Vacancy vs. Net Absorption
4,000 3,000 2,000 1,000 0 -1,000 -2,000

Vacancy Absorption

11.1% 1.81M SF
Net Absorption ('000's) Total Vacancy Rate (%)

16.0% 14.0% 12.0%

Greater Philadelphia Industrial

Square Feet (000's)

10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011

2011

Steady growth in corporate profits, combined with modest job creation has positively impacted gains across all sectors. Strong U.S. export growth resulted in resilient production in manufacturing, and despite global market volatility, gains should continue through 2012. Similarly, oil prices continue to fall, which has increased consumer confidence and spending, encouraging the modest growth. A number of emerging indicators have increased confidence in this period of growth. The national jobless rate dropped to a 33-month low of 8.6%. In addition, consumer spending over Thanksgiving weekend increased 9.1% from 2010; the largest year-over-year increase since 2006. Lastly, news of a coming resolution regarding the European debt crisis resulted in a 490.05 point jump in the stock market in the first week of December the largest leap since March of 2009.

The total vacancy rate decreased slightly in the fourth quarter to 11.1% from 11.8%. This drop continues a trend of decline in vacancy rates for the seventh straight quarter and represents a 130 basis point decrease year-over-year and a 324 basis point decrease over 24 months. The largest decreases in vacancy were in the Bucks County, PA and Camden County, NJ submarkets, which dropped 170 and 230 basis points from the third quarter, respectively to 6.6% and 20.6%. Total net absorption for the quarter increased to 1.81M SF, signifying a significant increase in industrial market activity. Regionally, availability decreased to 12%, with the Chester County, PA and Delaware County, PA submarkets showing the lowest availability, at 5.6% and 7.6%, respectively. These indicators, along with recent construction activity, suggest a pattern of strengthening market demand.

Rental Rates
$3.95 $3.90 Per Square Foot Per Year (NNN) $3.85

Average Direct Asking Lease Rate

Average Direct Asking Lease Rate

$3.76 NNN

New Construction
8,000 7,000 6,000

Construction ('000's)

Construction Activity

2.79M SF

$3.75 $3.70 $3.65 $3.60 $3.55 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011

Square Feet (000's)

$3.80

5,000 4,000 3,000 2,000 1,000 0 2005 2006 2007 2008 2009 2010 2011

After industrial rents spent two consecutive quarters stuck at $3.69 NNN following a four quarter slide the market seems to have found the bottom. Rental rates among Greater Philadelphias industrial properties finally rose in the fourth quarter, to average $3.76 NNN per rentable square foot. Montgomery County, PA had a $0.13 increase from the third quarter to $4.80, but the biggest mover was the Northeast PA submarket, which saw a $0.18 bump up to $3.65 from the last quarter. Research & development and flex properties demand the highest rents of the industrial development types with an average direct asking rate of $4.51. Expect average asking rates to continue to climb, as quality vacant space continues to come off the market.

Construction activity has picked up considerably in the fourth quarter of 2011. Projects in the Central PA, Lehigh Valley, and Northeast PA submarkets have resulted in 2.79M SF of construction. Much of this increase can be attributed to an additional 1.71M SF of warehouse and distribution space. Many of the current projects under construction are being built speculatively from developers. High demand for Class A big blocks of space, combined with a positive outlook on the local economy, are pushing the need for these large projects into the market.
Fourth Quarter 2011

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2012 CBRE Inc.

Total Vacancy Rate (%)

Greater Philadelphia Industrial

Top Lease Transactions

Size (SF) 373,075 342,500 244,790 171,325 146,590 Tenant Ulta Salon, Cosmetics & Fragrance Kimberly-Clark Worldwide Graham Packaging WEG Electric Company Fry Communications, Inc. Address, City, State 95 Kriner Road, Chambersburg, PA 500 Independence Avenue, Mechanicsburg, PA 1100 North Sherman Road, York, PA 35 Dauphin Drive, Mechanicsburg, PA 36 East Main Street, New Kingston, PA

Availability Rate Available space as a percentage of the Base Inventory or Building Sq. Ft

Top Sale Transactions

Size (SF) 382,265 185,000 170,000 146,906 96,846 Buyer RE Invest Tires & Wheel Renewal FOA, LLC. Franklin Valley Center for Literacy Endurance Real Estate Group ICUP, Inc. Address, City, State 515 North College Street, Carlisle, PA 1801 North 12th Street, Reading, PA 4518 Tacony Street, Philadelphia, PA 420-488 Drew Court, King of Prussia, PA 1152 Malkress Road, Cherry Hill, NJ

Average Asking Lease Rate Average of Asking Lease Rates for each property weighted by the associated Available Space. Available Area (Square Feet) Area which is either physically vacant or occupied that is being actively marketed and is available for tenant build-out, including sublease space. Completions Rentable Building Area completed during the period. Base Inventory, Base or Building Square Feet The sum of the Rentable Building Area for all competitive properties. Market Coverage Includes all competitive industrial and flex buildings 10,000 SF and greater in size. Net Absorption The change in occupied square feet from one period to the next, including both direct and sublease space. Occupied Square Feet Rentable Building Area less Vacant Space. Under Construction Buildings that have begun construction as evidenced by site excavation or foundation work, and is on-going. Vacancy Rate Vacant space as a percentage of the Base Inventory or Building Sq. Ft. Vacant Area (Square Feet) Existing Building Area which is physically vacant or immediately available, including sublease space.
For more information regarding the MarketView, please contact: Michael L. Compton, Research Manager CBRE, Inc. Two Liberty Place, 50 S. 16th Street, Suite 3000 T. 215.561.8900 F. 215.557.6719 michael.compton@cbre.com

Submarket Map

Copyright 2012 CBRE Statistics contained herein may represent a different data set than that used to generate National Vacancy and Availability Index statistics published by CBRE Corporate Communications or CBREs research and econometric forecasting unit, CBRE Econometric Advisors. Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE.