Abstract
Although leasing and construction deliveries rebounded nicely in 2025, the year saw construction starts, under construction inventory, and absorption fall below the levels seen previously in 2024.
Greater Philadelphia
ECONOMY
Economic growth gained momentum in the second half of 2025, supported by resilient services spending, rising investment in artificial intelligence, and a rebound in demand for durable goods.
Heading into 2026, newly enacted business investment tax incentives may bolster domestic capital spending, while larger personal tax refunds should provide households with additional support for consumption.
The magnitude of the resulting economic lift, however, will hinge on corporate confidence in the broader economic, financial-market, and policy environment, as well as on consumers’ willingness to deploy additional income rather than increase savings.
VACANCY
Vacancy in the Greater Philadelphia industrial market finished the year on a slight decline of 60 basis points (bps) from Q3 2025 to close out the year at 14.7%. This represents a 370-bps increase year-over-year (YOY) but is the first quarter of decline since Q4 2024. The rate has now increased 1,080 bps over three years.
Southeast PA and Southern NJ saw the steepest vacancy increases over the past year. Vacancy in Southeast PA jumped 590 bps to finish 2025 at 15.9% over 10.0% a year earlier, while Southern NJ rose to 18.0% from 14.6%. In the I-95 South submarket, following a five-quarter stretch of tightening which ended last quarter, vacancy finished at 11.9%, up 220 bps YOY but was the same as Q3 2025.
Burlington County stood as the lone bright spot. The submarket posted declines both YOY and quarter-over-quarter (QOQ), with vacancy falling 20 bps from last year and 40 bps from the prior quarter to close the year at 11.0%.
LEASING
Leasing activity in Greater Philadelphia closed the year strong, finishing with 12.9 million square feet (M SF) leased in 2025, which is up 25.8% YOY. Tenants signed for 3.5M SF in Q4 alone, compared with 2.5M SF during the same period in 2024. Quarterly leasing volume rose above pre-pandemic norms, which saw an average of 3.1M SF per quarter between 2015 and 2019.
Some submarkets posted notable gains. Southeast PA and Southern NJ recorded a 14.2% increase and 59.4% increase in leasing YOY, rising to 3.8M and 2.4M SF, respectively.
Large-format leasing continues to shape the market, as well as provide legitimacy to big-box projects in the region. DrinkPAK agreed to a build-to-suit lease for 1.4M at HRP’s Bellweather District in South Philadelphia to be their anchor tenant, with two existing buildings totaling over 1M SF available for lease.
RENT
Class-A industrial rents across Greater Philadelphia continued the pattern of moderation seen since rents began to level off in 2024. 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. The Greater Philadelphia market closed out 2025 at $13.21, which is an increase of 1.6% from Q3, but a decrease of 0.2% YOY, showing that rents are poised to increase as we head into 2026.
Rents increased on a quarterly basis, with Southeast PA rents increasing 0.1% to $14.83, 95-South rents increased 1.6% to $11.94 and Burlington County rents increased 1.2% to close out the year. Rent trends varied across the region. Burlington County was the lone submarket to post year-over-year rent growth, edging up 0.5% to $13.33/SF over $13.27/SF a year ago.
NET ABSORPTION
Greater Philadelphia’s industrial market rebounded with a quarter of 3.8M SF of positive net absorption after posting consecutive quarters of negative net absorption for the first time since 2020, which had ended a 19-quarter run of steady occupancy gains. Over that period, tenants absorbed roughly 40.4M SF, a testament to the market’s pandemic-era expansion..
Through the past six quarters ending in Q3 2025, average quarterly net absorption fell to about 404,000 SF, roughly 180% below the pre-pandemic average of 1.1M SF. While other performance metrics have softened year-over-year, current absorption levels still reflect a market in adjustment rather than in retreat, heading into 2026 with regained confidence and energy.
Even with the flurry of activity to end the year, tenant demand remains ever present. KBC Advisors is tracking 23 active requirements totaling nearly 8M SF, with an average deal size of about 385,000 SF. The bulk of that demand comes from e-commerce, retailers, and third-party logistics companies - sectors that continue to anchor the region’s industrial base.
CONSTRUCTION
Developers in Greater Philadelphia delivered 13.7M SF of new industrial space in 2025, surpassing the total for all of last year by 75%. But the surge in completions contrasts sharply with the slowdown in new construction starts, which have fallen nearly 57% YOY. Only 4.0M SF broke ground this year, compared with 9.2M SF in 2024.
The total pipeline under construction now stands at 2.8M SF, down 78% from a year ago. This represents the lowest amount of space under construction since 2017 as sites available for development have become harder to secure.
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