By Brenda Nguyen CoStar Analytics
After seven consecutive years of increasing availability of office sublease space, Philadelphia's office market is showing early signs of recovery.
The proportion of sublet options across the total available office inventory decreased to 15.1% in late 2024, down from a peak of 16.8% in mid-2023. This marks a notable shift following a continual increase in sublet availability since 2017, suggesting that the worst of the demand contraction may be behind the Philadelphia office market.
Over the past year, 66 office sublet leases were executed, totaling 470,000 square feet. The latest annual figure is comparable to 2023 when 68 office sublet leases were recorded. They involved more space, for a total area of 730,000 square feet.
Among the largest sublet agreements signed so far this year are PassageBio’s 15,850-square-foot sublease at 1835 Market St. in Center City and PetroChoice’s 14,500-square-foot sublease at 933 First Ave. in King of Prussia.
The relative persistence in sublet leasing activity suggests that the reduction in the share of sublet space can be attributed to two factors.
First, fewer tenants have listed office space on the sublease market in 2024, reducing the number of available options.
Second, several previous sublet listings have converted to direct leases as their lease terms expired, further diminishing the sublet share of available office inventory.
Despite the conversion to direct space, the overall amount of available office space in Philadelphia has shifted downward from an all-time peak of 50.8 million square feet in early 2024 to 49.4 million square feet in October, which means approximately 1.4 million square feet of office space was taken off the market throughout the year.
Although early signs are encouraging, the Philadelphia office market still faces challenges, as approximately a quarter of office leases signed before April 2020 have yet to expire. However, recent trends suggest the uptick in vacancy will be at a slower pace than years prior.
