Q3 2023 Philadelphia Office Market Report
As of the third quarter, the Philadelphia region has 21 new office properties in development, totaling over 3.7 million square feet, with University City and Market Street West submarkets accounting for 1.2 million square feet or 32 percent of ongoing construction. Despite caution from lenders on new loans, the emergence of new innovative projects emphasizes the resilience of the Philadelphia office sector for corporate headquarters, trophy-class office spaces, and life sciences laboratories. Additionally, Center City District reported a booming retail upsurge with occupancy rebounding to 89 percent from a low of fifty-five percent in June 2020 as new clothing, dining, furniture, and entertainment establishments filled downtown vacancies. On the contrary, underperforming, Class C/B office assets, with a significant vacancy and little to no tenant demand, are subject to conversion, as developers seek opportunities for new apartments. 1701 Market Street, a 300K SF office building located in the heart of Philadelphia’s central business district west, and formerly Morgan Lewis’ HQ, will be converted into 299 apartments by Alterra Property Group.
However, right-sizing continues as large organizations scale back their needed office space. This quarter, the law firm Fox Rothschild, Independence Health Group, Digitas, and KPMG all announced plans to downsize their space. Most significantly, Digitas, a marketing/advertising agency, is reducing its footprint by 50 percent, signing a lease for 55,000 square feet at the Bourse. Throughout Philadelphia, property owners are experiencing predicted declining occupancy and leasing revenue in the aftermath of the pandemic.
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