Vacancy is on the rise in Philadelphia, following a surge in deliveries — but the good news is supply is starting to trend down significantly.
Total vacancy in Philadelphia rose nearly 160 basis points year-over-year to 8.63 percent, a market report from Colliers finds. The CRE firm attributed the spike to an escalation in deliveries. The 5.44 million square feet was more than double the first quarter total and up from the 3.67 million square feet posted 12 months prior.
Particularly, vacancy hit suburban Philadelphia hard, with the area alone seeing a rise from 5.6 percent to 7.1 percent.
"The rise was fueled in part by over 1.6 million square feet delivered in Bucks County and the completion of a 636,120-square-foot building
at the I-76 Trade Center—Chester County’s largest spec project to date," Colliers wrote.
Furthermore, Southern New Jersey experienced the highest rate, averaging 11.6 percent.
However, this may only live to be a short-term headwind for industrial landlords in Philadelphia. Just 7.7 million square feet was under construction at the end of the second quarter, the lowest total seen since the first quarter of 2019.
"With new starts slowing and the development pipeline tapering, vacancy is projected to gradually decline through late 2025 and into 2026," Colliers predicts."
"Multiple announced facility closures will bring product back to the market in the second half of the year, the overall impact on vacancy is expected to be minimal."
Colliers' forecast calls for 4.8 million square feet to be deliver in the third quarter, followed by less than a million square feet in the coming three-month periods after that.
But still, tenant demand has been limited. Colliers said that was highlighted by net absorption hitting only 50,000 square feet, down substantially from the 1.11 million square feet 12 months ago. According to the broker, investors targeted single-asset industrial properties that had a "lower perceived risk."
EQT Real Estate made a $141.75 million acquisition in Southern New Jersey, representing the largest in the market during the second quarter.
Greek Real Estate Partners' $36.75 million in Bucks County and DH Property Holdings-DRA Advisors' $30.5 million in Southern New Jersey ranked second and third.
Average leasing rates during the second quarter were $11.25 NNN per square foot, up modestly from the $11.19 posted in the year prior.
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