Region’s industrial market stabilizing with lower vacancy rates

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Central Pennsylvania is leading industrial market recovery in Eastern Pennsylvania according to Lee & Associates latest market report. 

The First Quarter report tracks the region’s six primary submarkets: Central Pennsylvania, Lehigh Valley, Northeastern Pennsylvania, Metro Philadelphia, Southern New Jersey, and Delaware. 

Across the markets in the greater Philadelphia region, there was an overall vacancy rate of 8.44% in the first quarter of 2026. 

Comparatively, Central Pennsylvania’s vacancy rate was at 6.7 %, which is up from the fourth quarter of 2025, when it was below 6%, but significantly below the 7% to 7.5% vacancy rate that is considered a healthy market. 

In the Lehigh Valley, the market was slightly softer with a vacancy rate of 7.4% but is still in the healthy market range. It is also down from from 8.73% in the fourth quarter of 2025. 

Heather Kreiger, principal of Lee & Associates of Eastern Pennsylvania, noted that there was also significant leasing activity in the Lehigh Valley with 2.6 million square feet of space leased over multiple deals. 

“The Lehigh Valley still has quite a bit of demand,” she said. 

Kreiger said that while absorption didn’t move much, there was a dramatic exit from the marketplace when the Hamburg Logistic Center was sold to the federal government as a potential ICE detention facility, taking it off the market as an industrial property. 

“The biggest takeaway from the first quarter is that this market is continuing to move in the right direction,” said Kreiger. “Vacancy has been trending down quarter after quarter since the beginning of 2025, and that tells us the region is gradually working through the wave of supply that came out of the post-COVID construction boom.” 

The region as a whole recorded 3.27 million square feet of positive net absorption in the first quarter and just over 8.5 million square feet of leasing activity, reflecting real, though selective, occupier demand, Kreiger said. 

While leasing volume came in below the prior quarter and the long-term quarterly average, it was still enough to support positive absorption and a further decline in vacancy. 

According to Kreiger, Class A product led the market’s recovery once again. The report shows Class A vacancy at 10.93%, with 5.45 million square feet of positive net absorption in the first quarter and 17.46 million square feet absorbed over the past 12 months.  

As the dominant asset class in the region’s industrial inventory, Class A performance remains a major driver of the overall market’s improvement, she said. 

“Market fundamentals are getting stronger, but we’re not completely in the clear yet,” Kreiger said. “The market is improving, but there is still a meaningful amount of dark space and near-term availability that could affect vacancy over the next six months. This is a better market than it was a year ago, but it is still a market that needs to be watched carefully.” 

The report also showed a significant slowdown in new construction as a positive force behind the market’s stabilization.  

The active construction pipeline fell to 18.1 million square feet across the region, one of the lowest levels in the past five years.  

Kreiger said that has reduced the amount of new speculative space being added to the market and has helped existing vacancy begin to normalize. 

Most near-term speculative supply risk remains concentrated in Central Pennsylvania and Northeastern Pennsylvania, which account for the largest share of active construction.  

At the same time, Kreiger said the broader development pipeline remains substantial at nearly 214 million square feet, underscoring long-term confidence in Eastern Pennsylvania and surrounding logistics corridors as one of the country’s most important industrial regions. 

Looking ahead, Kreiger said the market should be watched most closely for the pace of new availabilities hitting the market and whether sublease volume continues to decline. 

“This quarter was another step forward,” Kreiger said. “The market is getting better, but the real story is that recovery is happening unevenly and with more discipline than we’ve seen in recent years.”