Mechanicsburg, PA — April 2025 — Lee & Associates of Eastern Pennsylvania has released its Q1 2025 Industrial Intel report, offering a data-driven snapshot of an industrial market in transition. Following an extended period of rapid expansion, the region has clearly entered the hyper-supply phase of the real estate cycle.

Total square footage under construction dropped below 16 million square feet this quarter—down 46% from the same time last year, and a steep fall from the 56 MSF peak seen during the post-COVID warehouse boom. Today’s construction volume mirrors what the market saw in 2016 and 2017, before the pandemic-driven surge reshaped logistics demand.

“We’re in a hyper-supply period, and that’s creating some discomfort in the short term,” said Heather Kreiger, CCIM, Regional Research Director and Principal at Lee & Associates. “But this is the expected outcome after years of aggressive expansion. The more important question isn’t whether the market is correcting—it’s how prepared developers and users are for the next phase of stabilization.”

Much of what’s still under construction today represents the final wave of projects from the post-COVID warehouse boom—developments that were planned during the height of e-commerce demand and are just now reaching delivery. The significant drop-off in construction starts in recent quarters is a strategic shift by developers—one that will lead to minimal completions in late 2025 and early 2026 which should give the market some time to recalibrate. In the near term, Metro Philadelphia and Southern New Jersey are expected to see the greatest influx of new product, which will continue to apply pressure to already-elevated vacancy levels.

At the same time, leasing activity has slowed across most submarkets as users navigate economic uncertainty, fluctuating transportation costs, and ongoing tariff policy shifts. Vacancy reached 9.44% this quarter, and further increases are expected in the coming months as additional supply hits the market. While this marks a clear shift from the frenzied pace of the past few years, it reflects broader economic conditions seen on a national scale more than a collapse in tenant demand.

Lehigh Valley, by contrast, shows signs of earlier stabilization. Construction in that submarket has remained consistent—well below five-year averages for the past eight quarters—and Q1 saw multiple leases over 100,000 SF. With limited upcoming deliveries and continued tenant interest, Lehigh Valley could return to equilibrium sooner than other regional markets.

Eastern Pennsylvania’s long-term outlook remains supported by a robust development pipeline totaling 221.8 MSF, nearly half of which is either approved or pad-ready. Developers are positioning themselves for what comes next—shifting to build-to-suit options, slowing speculative activity, and keeping entitlements moving so they’re ready to act when demand strengthens.

Top pre-construction pipeline leaders include:
- Northeast PA: 72.2 MSF
- Central PA: 41.6 MSF
- Lehigh Valley: 37.4 MSF

E-commerce continues to be a structural driver of demand, even as its pandemic-era surge has moderated. After spiking from 12% to 16.4% of U.S. retail sales early in the pandemic, e-commerce now sits back at that 16.4% level—but is forecasted to grow at a compound annual rate of 10.35% over the next five years. This steady growth will support long-term demand for logistics and distribution space.

“Eastern PA isn’t immune to oversupply, but the region remains a cornerstone of the Mid-Atlantic logistics network,” Kreiger added. “Its connectivity to ports and population centers, and its access to labor and infrastructure, continue to make it a strategic location—both now and for the next cycle.”

About Lee & Associates of Eastern Pennsylvania LLC

Lee & Associates is a full-service commercial real estate firm with offices in Mechanicsburg and Plymouth Meeting, PA. The firm’s Research division provides deep market intelligence and custom analytics across key industrial submarkets in the Northeast and Mid-Atlantic.

Media Contact:

Heather Kreiger, CCIM
Regional Research Director | Principal
hkreiger@lee-associates.com | (610) 590-1007