Abstract
Vacancy decline and high absorption lead to rent increases, while construction starts rebound to start year. Asking rents increased by 1.3% YOY to begin 2026, continuing a stretch of four quarters of asking rent growth. Vacancy declined by 260 bps from Q4 2025. With a shrinking development pipeline, expect vacancy to continue to drop.
Greater Philadelphia
ECONOMY
The U.S. economy began 2026 with notable support for growth, including expanded tax incentives for business investment, larger personal tax refunds, continued spending tied to artificial intelligence, and expectations of increased domestic investment linked to reshoring.
Retail sales picked up in January and February, marking a rebound from slower growth during the holiday season.
Job gains averaged nearly 70,000 per month in the first quarter, up from about 20,000 a year earlier, though hiring was concentrated in healthcare and wage growth showed signs of cooling.
The outlook for growth hinges on several factors, including continued job creation, sustained AI-related spending, broader domestic investment, trade and fiscal policy decisions, financial market conditions, and developments surrounding the Strait of Hormuz, with potential implications for consumer spending.
VACANCY
Vacancy in Greater Philadelphia’s industrial market opened 2026 on firmer footing, declining 260 basis points (bps) from year-end to 15.9% and marking a 120 bps improvement from a year earlier.
Conditions diverged across submarkets. Southeast Pennsylvania and the I-95 South corridor recorded the sharpest increases in vacancy over the past year, with Southeast Pennsylvania rising 490 bps to 21.1% and I-95 South climbing 410 bps to 16.4%.
Burlington County emerged as a relative bright spot. Vacancy fell to 5.7%, the only single-digit rate in the region, extending a four-quarter streak of declines and standing 860 bps below year-earlier levels.
Southern New Jersey also posted improvement, with vacancy declining 390 bps year-over-year (YOY) to 21.2%.
LEASING
Leasing activity in Greater Philadelphia started the year on a strong note, totaling 3.1 million square feet (M SF) in the first quarter, well above the pre-pandemic quarterly average of roughly 2.1M SF between 2015 and 2019.
Performance varied by submarket. Southern New Jersey more than quadrupled its leasing volume from a year earlier to 509,950 SF, while Burlington County doubled activity to 1.2 million square feet.
Elsewhere, leasing was more subdued. Southeast PA recorded flat YOY activity at 1.M SF, while the I-95 South corridor saw a marked decline to start the year.
Large-format leasing continues to shape the market, as well as provide legitimacy to big-box projects in the region. There are presently just five spaces larger than 700,000 SF that are existing and available for lease in the region.
RENT
Class-A industrial rents across Greater Philadelphia continued the pattern of moderation seen since rents began to level off in 2024, closing out Q1 2026 at $13.49 per square foot (/SF), which is an increase of 1.3% YOY and 2.1% increase over Q4 2025. The moderation reflects a broader recalibration in the market, as higher material costs, inflation pressures and tariffs prompt tenants to take a more cautious approach while landlords show greater flexibility to close deals.
Rent trends varied across the region. Burlington County was the lone submarket to post year-over-year rent growth and quarter-over-quarter growth, edging up 1.5% to $13.47/SF over $13.27/SF a year ago and up from $13.33/SF from Q4 2025. Elsewhere, rents showed more movement on a quarterly basis, with Southeast PA rents increasing 1.6% to $15.07/SF, Southern NJ declined by 0.5% to $11.89 and 95-South rents declined by 4.1% to $11.45/SF.
NET ABSORPTION
Greater Philadelphia’s industrial market extended its rebound in the first quarter, recording 4.9M SF of positive net absorption, the strongest quarterly showing since the surge in leasing activity since late in the pandemic era.
The recent gains stand well above longer-term norms. Over the past decade, quarterly absorption has averaged about 1.5M SF, making the past two quarters notable outliers. Even as other indicators have softened from a year earlier, absorption levels suggest a market recalibrating rather than contracting, entering 2026 with renewed momentum.
Tenant demand remains active. KBC Advisors is tracking 33 requirements totaling nearly 13M SF, with an average deal size of roughly 380,000 SF. Much of the activity is concentrated among e-commerce, retail and third-party logistics firms, sectors that continue to underpin the region’s industrial market.
CONSTRUCTION
Developers sharply curtailed new supply in Greater Philadelphia at the start of 2026, delivering 685,000 SF of industrial space in the first quarter, down from 4.1M SF a year earlier. The slowdown reflects a broader pullback in construction, with just 1.2M SF breaking ground and the active pipeline shrinking to 3.M SF - nearly 70% below Q1 2025.
The reduced pace of development is likely to redirect tenant demand toward existing space, a shift expected to help absorb available inventory and bring vacancy rates down over the course of the year.
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