Abstract

With the market posting its third straight quarter of above-trend absorption, vacancy fell to 15.5%, its lowest level in over a year. Construction continues to contract, with the pipeline down 61% year-over-year, positioning the market to work through its remaining supply overhang.

Greater Philadelphia

ECONOMY

• The economic tailwinds identified in the first quarter's market report have delivered: second-quarter employment growth accelerated, and retail spending held firm.

• But the recovery rests on a narrower foundation than it appears. As this outlet argued in "The Inverted Pyramid Economy," a single sector, artificial intelligence, is doing the heavy lifting for broader economic growth. That concentration cuts both ways. Should AI investment continue at pace, the ripple effects will extend well beyond tech balance sheets, feeding demand for logistics space through the back half of the year. Should it falter, the exposure runs deep.

• Other variables bear watching. Domestic manufacturing investment, the trajectory of real wages, retail sales data, trade policy shifts, financial market conditions, and geopolitical risk all carry the potential to reshape the demand environment for logistics real estate in the months ahead.

VACANCY

• Greater Philadelphia's industrial market extended its recovery in the second quarter, with vacancy falling 40 basis points (bps) from Q1 to 15.5% - a 360 bps improvement from a year earlier.

• The improvement broadened across submarkets. The I-95 South corridor posted the sharpest quarterly decline, shedding 190 bps to 15.0%, while Southeast PA, the region's most elevated submarket a quarter ago, eased 50 bps to 20.7%, effectively erasing its year-over-year increase.

• Burlington County remained the region's standout. Vacancy slipped to 5.3%, still the only single-digit rate in the region, marking a fifth consecutive quarterly decline and standing 750 bps below year-earlier levels.

• Southern New Jersey was the lone submarket to move against the trend, with vacancy inching up 70 bps to 21.9% - though the rate remains 520 bps below where it stood a year ago.

LEASING

• Leasing activity in Greater Philadelphia cooled from its strong start to the year, totaling 2.4 million square feet (M SF) in the second quarter — down from 3.1M SF in Q1 and 36% below the year-earlier pace. Even so, volume held above the pre-pandemic quarterly average of roughly 2.1M SF, and first-half leasing of 5.6M SF trails 2025's first half by a modest 13%.

• Burlington County did the heavy lifting, accounting for more than 40% of regional volume with 1.0M SF, its second consecutive quarter above the million-square-foot mark.

• The I-95 South corridor staged the quarter's sharpest turnaround. After a near-dormant start to the year at just 64,000 SF, leasing rebounded to 582,088 SF, essentially matching its year-ago pace.

• Activity was thinner elsewhere. Southeast Pennsylvania slowed to 536,701 SF, down 62% from the first quarter and 27% from a year earlier, while Southern New Jersey - a standout in Q1 - retreated to 273,175 SF.

• Large-format availability continues to tighten at the top of the market. Just three existing spaces larger than 700,000 SF remain available for lease in the region, down from four a quarter ago.

RENT

• Class-A industrial rents across Greater Philadelphia gave back some of their early-year gains, slipping 1.6% from the first quarter to $13.27 per square foot (/SF). Rents remain 1.8% above year-earlier levels, but the quarterly pullback underscores the recalibration underway as landlords sharpen pricing to compete for a thinner pool of active requirements.

• Burlington County again bucked the regional trend, with rents climbing 2.7% on the quarter to $13.84/SF, up 6.5% from a year ago, and now commanding the second-highest average in the region. Elsewhere, rents softened: Southeast PA declined 2.8% to $14.65/SF, 95-South fell 1.7% to $11.25/SF, and Southern NJ edged up 1.1% to $12.02/SF, though it remains slightly below year-ago levels.

NET ABSORPTION

• Greater Philadelphia's industrial market posted its third consecutive quarter of above-trend demand, absorbing 2.0M SF in the second quarter. While down from the first quarter's outsized print, absorption remains well above the roughly 1.5M SF quarterly average of the past decade, and first-half absorption of 6.9 MSF is nearly four and a half times the pace set over the same period in 2025.

• Gains were broad-based across the Pennsylvania and Burlington submarkets. Burlington County led the region at 879,935 SF, followed by the I-95 South corridor at 582,118 SF and Southeast PA at 537,701 SF. Southern New Jersey was the outlier, finishing the quarter essentially flat.

• The demand pipeline suggests continued momentum. Sustained absorption alongside a slowing construction pipeline, under-construction space fell to 2.7M SF from 3.3M SF a quarter earlier, points to a market working through its post-pandemic supply overhang rather than adding to it.

CONSTRUCTION

• New supply remained on a short leash in the second quarter. Developers delivered 1.7M SF of industrial space across Greater Philadelphia - up from the first quarter's muted 685,000 SF but less than half the 3.7M SF completed a year earlier - bringing first-half deliveries to 2.4M SF, roughly 70% below 2025's pace. The active pipeline continued to thin as well, ending the quarter at 2.7M SF under construction, down from 3.3M SF in Q1 and 61% below year-ago levels.

• Of the 1.1M SF that started construction in the second quarter, roughly 730,000 SF is in Burlington County - the region's tightest submarket at 5.3% vacancy - a sign that developers are reserving new bets for markets where fundamentals have already turned.

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