Philly Industrial Activity Cools As Remnants Of Pandemic Boom Fall Away

Greater Philadelphia’s industrial sector had been operating at warp speed to meet unprecedented demand caused by the postpandemic e-commerce boom, but it looks like the market is finally starting to cool off.

Leasing activity regionwide fell to 3.8M SF last quarter, down from the 6.8M SF in the fourth quarter of 2024, according to Avison Young’s latest metro Philly industrial report.

The brokerage found that the construction pipeline shrank to 16.9M SF in Q1 2025, down from a peak of more than 50M SF in late 2022. This came as vacancy rose to 8% last quarter, higher than any point on record since 2016.

“A lot of it is a return to normal,” Avison Young principal Jim Scott said. “It is relative to what was an all-time peak in absorption and deliveries at the tail end of Covid … It was just truly extraordinary.”

Despite a slowdown in activity, investment in the sector still made it to $362M last quarter, up 83% year-over-year. Much of that activity came from value-add Class-B and C purchases, Scott said.

“There’s actually tenants in the market who are happier to be in a B building based on cost savings,” he said.

The market has also experienced increased demand for smaller spaces and a large volume of owner-user sales and leasebacks in recent months, said Avison Young Senior Analyst Zachary Cutler.

Cutler and Scott are particularly excited about the industrial market in Philadelphia proper, where cargo processing upgrades are underway at the Port of Philadelphia and the Philadelphia International Airport.

While the Trump administration’s tariffs might diminish international trade going forward, PhilaPort saw a record-breaking 357,000 20-foot equivalent units of imports and exports last quarter, according to data provided by Avison Young.

“I’m just really bullish on that immediate area around there,” Cutler said. “I don’t see it not helping the greater industrial market from an absorption standpoint.”

The RMR Group’s nearly 500K SF industrial project at 8800 Tinnicum Boulevard sits directly across Interstate 95 from the airport. It will replace an office building on the site, which PNC Bank vacated last year. RMR is managing the property on behalf of a REIT owned by the firm, and Avison Young is the exclusive leasing partner.

“The build will take about two years,” RMR Director of Real Estate Development Julie Livingstone said. “We’re on track to begin demolition later this year.”

Livingstone expects the space to fetch $17 per SF, well above the regional and citywide averages of $9.65 and $12.25, respectively.

“We have incredible visibility from I-95 and from the Philadelphia Airport, which offers an opportunity for prominent signage,” Livingstone said.

Another market that stands out in the Avison Young report is South Jersey’s Salem County, which had a direct vacancy rate of more than 44% last quarter. The metric sat at just 9.8% and 4.6% in neighboring Gloucester and Cumberland counties.

“We’re seeing those spec buildings going up without a tenant in sight,” Cutler said. “It’s a shock to the market from an inventory perspective.”

That activity can be partly attributed to the availability of land in locales like Carneys Point, where EQT Real Estate bought a 48-acre development site entitled for more than 700K SF of industrial construction earlier this month.

“It’s more rural,” Scott said. “Those were sites where developers could come in, purchase at a reasonable price.”

But Salem County is further from Philly and New York than industrial heavyweights like Burlington County and Bucks County, and it’s across the Delaware River from I-95, which creates extra mileage for truckers.

“There have been some buildings that were built that maybe shouldn’t have been,” Scott said.

The building blitz across greater Philadelphia in recent years that caused higher vacancy rates is now creating a flight to quality.

“The real estate cost in the form of rent is a relatively small line item for a distribution company,” Scott said. “We’re seeing companies move to better-located buildings, consolidating multiple locations under one roof.”