Industrial Vacancy Rises In Philly As Tenants Favor Surrounding Region

While industrial vacancy has declined in Eastern Pennsylvania’s hottest industrial markets over the past year, Philadelphia and some of its suburbs have not been able to tap into that recovery.

An onslaught of new supply, stubbornly high asking rents and a slightly less advantageous geographic position left the city and its Pennsylvania collar counties with notably higher vacancy than much of the surrounding region last quarter.

“Greater Philadelphia had never really been, until the Covid years, a spec market for Class-A space,” Colliers Executive Vice President Michael Golarz said.

“Those buildings delivered, and the demand that had been anticipated to be there had also softened,” he added. “But it also wasn’t there in a historic fashion to begin with.”

Vacancy in Philly and the Pennsylvania half of its metro area reached 12.9% in Q1 2026, up 90 basis points year-over-year, according to Lee & Associates.

The firm’s report spanned from Harrisburg to South Jersey and found that the regionwide vacancy rate was 8.4% and down 1% from Q1 2025.

Historically, Philly proper was never top of mind for Northeast logistics and e-commerce players, which are primarily focused on proximity to the region’s largest port in Newark, New Jersey, Cresa Managing Principal Eric Zahniser said. 

Trucks coming from there would hit the Lehigh Valley or Burlington County first, which makes them a more logical destination for spec warehouse projects.

Despite that, the unprecedented spike in demand for warehouse space wrought by the pandemic made developers reconsider Philly and the collar counties for Class-A projects.

“You’re talking about a market that basically tripled its size,” Lee & Associates Regional Research and Marketing Director Heather Kreiger said of the segment. “It takes a little while longer for that Class-A space to absorb.”

The brokerage found that the 28.3M SF of Class-A industrial space in Philly proper had a 29.7% vacancy rate, while the Class-B and C segments both sat at around 5%.

The market has been absorbing the space slowly. Lee & Associates tracked about 1.1M SF of absorption in Southeast Pennsylvania last quarter, which was about the same as what it tracked in Q1 2025.

The Philly market has another barrier to entry in the form of higher asking rents.

Colliers found that average rents in Southeast Pennsylvania reached $13.55 per SF last quarter, while the Lehigh Valley and Central Pennsylvania were $11.60 and $8.96, respectively.

Tenants are expected to shoulder these extra costs in Philly and its Pennsylvania suburbs in spite of a labor pool that is less robust than neighboring markets like the Lehigh Valley, Zahniser said.

“They have to have a really specific reason that they’re going to pay that rent premium, because it’s pretty significant,” the broker said. 

“They have to be wanting to interact with doing last-mile distribution to this population or they’re related to some specific customer manufacturing operation.”

The higher asking rents are a function of the underwriting developers and lenders did during the peak of the pandemic demand surge, Zahniser said.

Many paid top dollar for land at the time and won’t be able to make back the amount of money they underwrote deals at if they charge lower rents. Instead, many have opted to wait for a change in market conditions.

“There’s no incentive for them or their lender to reduce their rent to fill it up,” Zahniser said.

“Everybody’s just losing a lot more money than if they wait and stay vacant and then have a belief that the market is going to come to them and the rental rates are going to go up,” he added.

Golarz agreed with Zahniser’s analysis but said there are some landlords who have more flexibility with their rents.

While metro Philly’s vacancy rate rose over the past 12 months, Lee & Associates reported the metric in South Jersey fell from 14.2% to 11.5%.

But that progress wasn’t spread evenly across the region.

The Colliers report broke out Burlington County, which had under 7% vacancy last quarter across its 39M SF of standing stock, while the rest of South Jersey sat at over 25% across more than 30M SF.

Burlington County’s relative proximity to the port in Newark is the main reason for its standout performance, but a large wave of new, unoccupied Class-A product in Carney’s Point is also spiking the rest of South Jersey’s vacancy numbers, Zahniser said.

That part of Salem County directly across the river from Wilmington, Delaware, is a much harder sell for tenants in search of port proximity, Golarz said.

“When you look at true Salem County, it starts to get into a market where it can compete with Delaware,” the broker said.

Ultimately, he is confident the vacant space there and in Philly will lease up when the market enters a new cycle. That may be on the horizon, given that Colliers tracked zero square feet in the pipeline across greater Philly and South Jersey last quarter.