The industrial sector is now the king of the Philadelphia region’s commercial real estate market, though it may not reign for long.

For the first time ever, industrial sites in the metro area are collectively worth more than multifamily properties, according to a new report from CoStar.

Industrial assets in the Philly region are currently valued at $77.8B, while multifamily properties are worth just $75.9B. That’s a major shift from January 2022, when the multifamily sector was worth $88.3B and industrial assets were valued at $71.3B — a gap of $17B.

High interest rates and more conservative underwriting standards caused multifamily property values to fall by 14% over that period, according to analysis from Brenda Nguyen, an associate director of market analytics at CoStar.

Meanwhile, strong demand in the e-commerce and shipping sectors helped industrial valuations grow by 9% over the same time frame. Philadelphia’s strategic location along the Northeast Corridor was a big part of that success.

Still, the shift in the pecking order could be temporary.

The Federal Reserve cut interest rates again on Thursday, this time by 25 basis points, which could be a positive for multifamily transactions. Rates are expected to come down even more in the coming months. Decreased interest rates were a key campaign priority for President-elect Donald Trump.

Demand for residential rentals remains strong, Nguyen said.

There are many new multifamily properties slated to come online in the coming months, due in part to developers' rush to beat the 2022 deadline for a city tax abatement program. But once that wave of construction is complete, there could be a notable decline in residential construction across the greater Philadelphia metro, according to the analysis.

The CoStar report lines up with CBRE’s metro Philadelphia industrial report for the third quarter.

The regionwide vacancy rate was down 8% across the region quarter-over-quarter, and the metro area absorbed 1.5M SF of industrial space, up from 237K in Q2. That was partly due to high demand from the third-party logistics sector.

CBRE found that vacancy rates in Philadelphia County were just 5.2%, lower than the regionwide rate of 8%. Only two places in the metro area had lower vacancy rates than the city proper, Chester County at 3.8% and Camden County at 4.4%.

The report also found that nearly 2.7M SF of industrial space was under construction in the city last quarter.

Delivery company Veho just leased a 149K SF warehouse in Northeast Philadelphia from Bridge Industrial, which finished constructing the space earlier this year. The site near the Betsy Ross Bridge also has a divisible 741K SF industrial space that is still available for rent.