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Philadelphia’s office market remained on a relatively stable trajectory, considering ongoing headwinds, such as debt maturity and rising vacancy rates. According to the latest CommercialEdge data, Philly developers were working on adding 1.1 percent of existing stock to the inventory as of May.
Meanwhile, investment in the first five months of the year declined to less than half of the volume recorded in the same period last year, while vacancy increased 200 basis points, but remained below the national average.
The most significant office lease was an extension, while one of the largest properties to come online was a medical outpatient facility in the CBD. Read on for our in-depth report for the first five months of this year.
Philly development outpaces some peer markets
As of May, Philadelphia had 2.1 million square feet of office space under construction, which represented 1.1 percent of existing stock—just 10 basis points below the national figure. Compared to similarly sized secondary markets, Philadelphia outpaced Houston (0.8 percent of stock underway) and Phoenix (0.3 percent), while Charlotte (2.3 percent) and Nashville (4.6 percent) remained ahead.
The largest office development in Philadelphia is Parkway Corp.’s 2000 Arch St., taking shape in the Logan Square neighborhood. The 550,000-square-foot property will serve as a consolidated headquarters for Chubb. Last year, Parkway obtained $409 million in credit tenant lease financing for the project. Completion is slated for early 2026.
Developers broke ground on four properties totaling 976,260 square feet in the first five months of the year. This was down to less than half of the 2 million square feet of office space that broke ground in the same period last year across six properties.
READ ALSO: NAREE Special Report: Why Conversion Isn’t CRE’s Magic Bullet
Three properties came online in the market year-to-date through May, encompassing 647,303 square feet. The largest of these was the 462,000-square foot Jefferson Honickman Center in the CBD. The 19-story medical outpatient facility cost $762 million to develop and its construction took four years.
Another significant asset that came online during this time was the 105,303-square-foot Walkers Mill, in suburban Wilmington, Del. The building is part of Pettinaro’s 56-acre mixed-use Barley Mill project, which includes 38,700 square feet of retail, 80 luxury apartments and 33 townhomes.
Vacancy grows, but maintains below the nation’s average
Philadelphia’s office market saw its overall vacancy increase by 200 basis points year-over-year, to 15.3 percent as of May. Although growing, the figure remained below the 17.8 percent national rate. It also lagged peer markets Charlotte (14.7 percent) and Nashville (15.0 percent). Meanwhile, Phoenix (18.2 percent) and Houston (22.5 percent) had higher vacancy rates.
A significant lease deal that took shape in the first five months of the year was an extension. Dow, a materials science company signed a long-term agreement for 800,000 square feet in Collegeville, Pa., at Northeast Dow Center. The 1.9 million-square-foot office, life science and mixed-use campus is owned by a joint venture of David Werner Real Estate Investments and GreenBarn Investment Group.
Tech markets have been severely impacted by industry headwinds that started at the end of 2022, and vacancy in these areas mirrored this, according to the latest CommercialEdge national office report. San Francisco suffered a severe 510-basis-point increase year-over-year, to 25.5 percent as of May, while Seattle’s rate grew 350 basis points, to 23.0 percent.
Investment drops below half year-over-year
Investors traded $145 million in office assets across the metro year-to-date through May, 58.9 percent less year-over-year. More than 2 million square feet of office space changed hands, down from the 2.6 million square feet recorded in the same period last year.
These properties traded for an average price per square foot of $90 as of May, down 44.4 percent year-over-year—below the nation’s $165 figure. Philadelphia also lagged peer markets like Charlotte ($121 per square foot), Houston ($125), Phoenix ($191) and Nashville ($227).
Philadelphia’s two largest office deals were both in suburban Wilmington and had the same buyer. Global pharmaceutical company Incyte acquired the office assets at 1100 N. King St. and 1100 N. French St., for $34.2 million and $13.3 million, respectively. Capital Commercial Investments sold both assets, which measure a combined 501,553 square feet.
Three other office deals valued at more than $10 million closed in the metro year-to-date through May. Notably, LCN Capital Partners acquired the asset at 311 Veterans Way in Levittown, Pa., for roughly $121 per square foot. The 90,371-square-foot property was a retail-to-office adaptive reuse, redeveloped in 2002.
Peer markets outpace Philly’s shared space totals
Philadelphia’s shared office space inventory comprised more than 2.5 million square feet as of May, which represented 1.4 percent of total rentable office space. This share was smaller than the national average of 1.8 percent. Similarly sized metros remained ahead of Philadelphia with slightly larger shared office space segments—Houston with 1.7 percent of stock, Atlanta (2.1 percent), Charlotte (1.5 percent) and Nashville (3.0 percent).
Regus was Philadelphia’s largest coworking provider, with roughly 445,000 square feet of space across 24 locations. Other significant players included Industrious (122,775 square feet) and Convene (87,700 square feet).
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