Vacancy declines for the first time in a year amid cautious optimism and steady leasing momentum

MECHANICSBURG, PA – October 2025 – The Eastern Pennsylvania industrial market showed signs of rebalancing in the third quarter of 2025, as vacancy declined for the first time in a year and leasing activity strengthened across multiple submarkets, according to the Q3 2025 Eastern Pennsylvania Industrial Intel Report by Lee & Associates of Eastern Pennsylvania.

After a slow start to the year, leasing velocity rebounded with 7.2 million square feet (MSF) of leases signed in Q3, following 10.8 MSF in Q2 and 3.6 MSF in Q1. “Many of the deals that should have closed in early 2025 were simply delayed,” said Heather Kreiger, CCIM, Principal and Regional Research Director at Lee & Associates of Eastern Pennsylvania. “As those deals finally executed in the second and third quarters, the market showed encouraging signs of movement.”

Overall vacancy fell from 9.50% to 9.23%, marking the first quarterly decline since 2024. Net absorption was positive 3.045 MSF, while 3.1 MSF of new product was delivered, most of it still vacant. Class A vacancy edged lower while Class B and C rates held steady. “Vacancy has begun to stabilize,” Kreiger said, “but availability continues to climb, signaling some near-term pressure ahead as new availabilities work through the market.”

Availability Trending Up, Led by Subleases

While vacancy measures physically unoccupied space, availability reflects space soon to be vacated, typically within six months, and sublease offerings with at least two years remaining on the master lease. This distinction has become increasingly important.

Kreiger noted that availability has risen even as vacancy fell, due to a wave of large listings and sublease spaces concentrated in buildings 750,000 SF and larger. Roughly 30% of new listings this quarter were subleases. “Subleases now represent about 2.35% of total inventory, or roughly 18% of total available space,” said Kreiger. “While subleases don’t immediately affect vacancy, they play a growing role in market availability, following a different timeline and set of dynamics than direct availabilities.”

Construction Corrects, Development Pipeline Matures

The region’s construction pipeline increased slightly to 18.8 MSF under construction, signaling what Kreiger calls a healthy correction. “Developers are showing restraint, which is what the market needs right now,” she said. “We’re past the post-COVID surge, and construction has shifted to a more sustainable pace that allows vacancy to recalibrate.”

Average project size continues to trend smaller, a result of limited viable land, more complex local approval processes, and rising NIMBYism. Another 8.6 MSF is projected to deliver within six months, while pre-construction volume totals 206.7 MSF across 418 tracked projects, about half of which are now approved or pad-ready.

“Developers are still active, but they’re more selective,” Kreiger said. “We’re seeing fewer speculative starts and more projects positioned for build-to-suit opportunities. It’s a sign of a maturing market.”

Regional Highlights

• Central Pennsylvania (CPA) led the region in leasing activity and total deal count, with 2.8 MSF leased and vacancy down to 6.74%.
• Lehigh Valley saw a modest vacancy decrease to 8.60% amid strong leasing but rising availability, with 4.3 MSF of new listings, two-thirds of which were subleases.
• Southern New Jersey posted a vacancy decline to 13.14%, with 1.8 MSF of new leases and construction at its lowest level since early 2020.
• Metro Philadelphia remained steady at 13.23% vacancy as 1.3 MSF of new spec deliveries entered the market.
• Northeastern PA stayed essentially flat at 8.07%.

Eastern PA’s Role in the National Market

“The Eastern Pennsylvania industrial corridor is one of the largest and most important logistics hubs in the country,” Kreiger said. “It mirrors many of the national trends: moderating construction, rising availabilities, and cautious optimism, but it also continues to be a critical cog in the U.S. supply chain.”

Kreiger describes the market’s current phase as cautious but optimistic and realistic. “We’re in a correction period, not a collapse,” she said. “Leases are still getting signed, demand is still out there, and 2026 should provide more clarity as the market finds its footing.”

About the Q3 2025 Industrial Intel Report

The Lee & Associates Industrial Intel Report is a quarterly analysis of industrial market performance across 43 counties in Pennsylvania, New Jersey, Delaware, Maryland, Virginia, and West Virginia. The report tracks over 660 million square feet of inventory in Eastern Pennsylvania alone, focusing on leasing activity, vacancy trends, construction, and development.

 

 

MEDIA CONTACT:

Heather Kreiger, CCIM

Principal, Regional Research Director

Lee & Associates of Western PA

hkreiger@lee-associates.com