Vacancy rate high, but stable along I-78/I-80 industrial corridor

The commercial vacancy rate along the I-78/I-80 industrial corridor continues to rise as a drop-off in pandemic-era demand for space and concerns about current economic conditions have impacted the market.

In its most recent commercial real estate report for the corridor, CBRE says that vacancy rates are likely to remain high – but not dramatically so – for at least the near future.

Leah Balerno, senior vice president for CBRE, said the higher vacancy rate is no reason for serious concern.

“It’s been trending up for a while, but we’re still under the 10% threshold,” Balerno said. “It’s still indicating a healthy market and we’re not constantly seeing new product on the market like we did right after the pandemic.”

While the overall vacancy rate for the corridor is at 8%, the highest vacancy rate is in the Northeastern Pennsylvania region, which has

a vacancy rate of 11%, while the Lehigh Valley is at 8.8% and Central Pennsylvania is at 6.5%.

Balerno said it’s understandable why Central Pennsylvania has the lowest vacancy rate.

“The fundamentals of Central Pennsylvania have always been strong,” she said.

Meanwhile, she said it’s also making sense why the Lehigh Valley, which had the most activity and development in the wake of the pandemic, has a higher rate.

“Rate wise, the biggest migration was from Northern New Jersey, but since the vacancy rate there is significantly stiffled now, there is availability now in New Jersey,” she said.

Balerno said several factors have impacted the vacancy rate along the corridor, with one of the main issues being tenant caution delaying decision making.

Given the economic uncertainty and the significant rent increases compared to pre-pandemic levels; tenants are likely to continue taking a cautious approach. This means longer decision-making timelines as they reassess their space needs and financial commitments.

Meanwhile, tenants with near-term lease expirations are looking to develop long-term strategies to mitigate future cost increases, which could involve negotiating more favorable lease terms or considering alternative locations.

Concerns over tariffs are also impacting companies’ decision-making on leasing new space, as they await clarity on how increased costs will impact them.

“Economic uncertainty has been there for more than a year, first with it being an election year and now tariffs delaying decisions,” Balerno said. “You’d be hard pressed to find any company that doesn’t have products or components that flow through our ports.”

Meanwhile, rents remain at record highs.

The average contract rent in 2020 was $5.09 per square foot, but rent is currently an average $9.50.

That’s an 87% increase over the last five years

Balerno said landlords are staring to offer a little bit more to tenants to maintain the face rate, which has risen dramatically in recent years. But the overall goal is to maintain those higher face rates.

Instead, they are offering tenants such incentives as free introductory rent, flexible lease terms, or space improvement dollars in order to maintain the rental rates.

Balerno said there has been very little drop in overall rental rates, despite the higher vacancy rates, with the exception of a few cutbacks in more high-vacancy areas.

One factor that’s keeping the vacancy rate in check, however, is the lack of new buildings coming to market.

Developers are limiting new construction starts due to vacancy rates and development constraints, mitigating the risk of future oversupply.

Balerno said this is a significant departure from previous periods of rapid development, when the industry was struggling to keep up with the demand.

Much of the vacancy has been driven by changes with third-party logistics companies, but Balerno said that ironically, 3PLs are also currently taking up most of the newly vacated space.

Mostly, it’s about their clients switching strategies to limit their exposure to market changes, meaning rightsizing their use of space to maximize their value.

Many vacancies are often being filled by a 3PL with a different end user or product.

Despite limited lease signing in the first quarter of 2025, Balerno said there is a high level of optimism with the number of deals pending that should be executed in the second quarter.

Food & Beverage, Automotive, Packaging & 3PLs are expected to be the busiest sectors entering the market next quarter.

As the market adjusts to the current environment, Balerno said both tenants and landlords will need to stay informed about economic policies, such as tariffs, that will likely impact the market.