Center City Remains Philadelphia’s Office Powerhouse Despite Reduced Demand Compared to Years Past

By Brenda Nguyen Costar Analytics

Despite widespread concerns about the health of Philadelphia's downtown office market, Center City’s Market Street West section continues to attract a major share of new leasing activity to lead the overall region.

In the first half of 2024, the Market Street West submarket signed 548,000 square feet of new office leases. Notable leases signed in the first half of the year included Clark Capital’s 37,500-square-foot lease at One Liberty Place, nearly double its current office footprint. Ballinger also signed a 46,500-square-foot lease at 1650 Arch St., where the architecture firm plans to relocate and expand from its current Market East location. Several law firms, including Saul Ewing and Dilworth Paxon, also secured significant leases.

Despite a 30% decline from the average amount of office space leased during the same period between 2015 and 2019, office tenants were still signing new deals at a higher volume here than across the rest of the region.

Alongside new lease signings, office move-outs have slowed significantly since the end of 2023, resulting in positive annual net absorption, or the net change in occupancy, for the first time since 2018, totaling 175,000 square feet.

At the street level, local market participants and a walk through the Market Street West business district show street activity is notably more vibrant than last year.

However, the city's office sector still faces challenges. Along with the positive leasing activity Market Street West has also experienced the most significant increase in office availability rates in the region, surging by 900 basis points since the end of 2019.

Despite the increase in availability, Market Street West remains the epicenter of employment in Center City, which houses 280,000 employees. This stretch of Center City contains 41.5 million square feet of office inventory, with another 658,000 square feet of new office development underway.

Major new office projects include 2300 Market Street, a 220,200-square-foot office building catering to life science companies being developed by Tishman Speyer, Bellco Capital and Breakthrough Properties. A few blocks away, Parkway Corp. is well underway on Chubb’s 438,000-square-foot office building at 2000 Arch St., which is scheduled to be completed in early 2026.

In comparison, King of Prussia, considered to be Suburban Philadelphia's premier office market, has only 15.5 million square feet, not even half that of Market Street West.

Despite its smaller size, King of Prussia still secured 330,000 square feet of new leases in the first half of the year, largely thanks to its life science momentum, vibrant retail, and mixed-use characteristics—mirroring the strengths of Market Street West. Due to its smaller office footprint, King of Prussia has not faced the same challenges of excess office supply as Center City.

While Philadelphia's overall office market continues to navigate a complex landscape, Market Street West’s position as a core employment hub, coupled with emerging signs of stabilization, offers a glimmer of optimism for the downtown. However, sustained recovery will depend on factors such as macroeconomic conditions, ongoing adjustments to hybrid work models, and company-driven decisions involving lease expirations.

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