A shallow-bay warehouse in Eastern Pennsylvania, reflecting the increasing demand for smaller industrial spaces.
Eastern Pennsylvania, September 11, 2025
The industrial real estate market in Eastern Pennsylvania is undergoing a significant shift, with businesses moving away from large-scale warehouses to smaller, shallow-bay spaces. This trend, intensified by the pandemic, presents challenges for developers due to high construction costs, yet offers opportunities as smaller facilities become more appealing to local businesses. Rental rates for shallow-bay warehouses have increased, highlighting the demand for these types of properties. Community concerns over new developments and advocacy for local input are also emerging amid these changes.
The industrial real estate market in Eastern Pennsylvania is witnessing a significant transformation as the aftermath of the pandemic reshapes the landscape. There has been a noticeable decline in demand for large-scale warehouses, pushing businesses to seek out smaller, shallow-bay warehouse spaces. This trend could have far-reaching implications for both landlords and developers in the region.
Since the onset of the pandemic, it has become clear that the appetite for massive warehouse facilities is waning. Businesses are now pivoting towards smaller industrial buildings that cater more effectively to their operational needs. This shift is particularly evident in the Lehigh Valley, where there has been a struggle to find suitable small industrial spaces measuring between 20,000 to 30,000 square feet.
Despite the evident demand for smaller warehouses, a number of challenges hinder the development of new small industrial projects. Elevated costs associated with construction, land acquisition, and entitlements mean that developers find it difficult to justify building new shallow-bay facilities. Additionally, the legal and entitlement costs are comparable between small and bulk facilities, making smaller projects less feasible from a financial perspective.
Insights from industry professionals reveal that the current state of the market presents a unique opportunity for developers willing to take the plunge into constructing small bay warehouses. However, expectations for a surge in new small industrial projects remain low due to the high costs relative to potential rental returns.
Shallow-bay warehouses are increasingly appealing to a wider audience, encompassing small businesses and local contractors. These types of properties usually feature shorter lease terms, which allows for more frequent adjustments in rental rates to keep up with market conditions. This flexibility in leasing can be particularly advantageous for both tenants and landlords in an ever-changing economic landscape.
In Greater Philadelphia, shallow-bay rents have climbed nearly 9% year-over-year, outpacing growth in other markets. Interestingly, properties in Philadelphia yield lower rental premiums than other areas, despite rising rental rates being partially driven by limited supply.
Philadelphia is currently ranked as the fifth-most-expensive construction market in the nation. The costs for building small industrial facilities are substantially higher per square foot compared to bulk warehouses, attributed to less efficient floor area ratios. To counteract these escalating costs, alternative construction techniques, such as utilizing preengineered metal walls, may be explored as a means to make small warehouses more economically viable.
While the construction of new small industrial facilities is limited, older stock of shallow- and small-bay warehouses is being repurposed by tenants who cannot afford the costs associated with brand-new builds. As the demand for warehouse space increases, concerns from local communities have also emerged, including issues related to traffic congestion, noise pollution, light disturbances, and the loss of green areas.
Amid these developments, various local advocacy groups are pushing for enhanced community input in warehouse project proposals. Legislative efforts are being undertaken to ensure that community concerns are adequately considered before new developments are approved. As the situation evolves, stakeholders will likely need to find a balance between satisfying market needs and addressing community impacts.
The demand for smaller warehouses has surged post-pandemic as businesses are looking for more tailored spaces to meet their operational needs instead of large-scale facilities.
Developers face elevated costs related to construction, land, and legal entitlements that make it challenging to pursue new small warehouse projects.
In Greater Philadelphia, shallow-bay warehouse rents have increased nearly 9% year-over-year, indicating robust demand despite rising construction costs.
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