Philadelphia's industrial real estate market is undergoing a notable downturn, with demand reaching its lowest levels in more than a decade. The decline in leasing activity follows trade policy announcements earlier this year that have increased uncertainty in the logistics and manufacturing sectors, prompting some companies to postpone expansion decisions and reevaluate supply chain operations.
Through the third quarter, Philadelphia’s absorption fell into negative territory at -213,000 square feet, representing a significant retreat from the average quarterly leasing volume of 5.1 million square feet maintained over the past three years. This decline occurred alongside the delivery of 12.9 million square feet of new inventory, contributing to a 1.8% year-over-year increase in vacancy to 9%.
Properties built after 2010 attract stronger interest
Current leasing trends reveal a clear divergence based on property age and specifications. Properties constructed before 2010 have experienced substantial tenant departures, recording negative absorption of 8 million square feet. The hardest-hit areas — including East Montgomery, Camden and Chester — hold some of the highest concentrations of vintage warehouses.
In contrast, properties built after 2010 continue to attract tenant interest, achieving 8.5 million square feet of positive absorption — performance consistent with the previous year. Burlington County, the epicenter of industrial development, accounted for half of the region’s positive absorption across newer buildings. These modern facilities typically feature higher ceiling heights, enhanced loading capabilities and contemporary warehouse management infrastructure that aligns with current operational requirements.
Moderate supply pressures are still anticipated in the near term, as developers are still underway on 6.5 million square feet of new industrial space, 75% of which is speculative. As a result, vacancy rates are projected to reach 9.8% by mid-2026.
Forecasts suggest demand contraction will persist through the remainder of 2025, with economic uncertainty influencing occupier decision-making regarding facility expansions.
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