Empty office space is costing Philadelphia big money

By Joanne Drilling – National Data Reporter, The Business Journals

Office vacancy rates are at their highest point in 45 years. Commercial real estate insiders predict one-quarter of existing American office space could be vacant by early 2026. And currently, 11 major metros have at least $1 billion worth of empty space.

Philadelphia falls just outside of that $1 billion group. Locally, 27.6 million square feet of office space was vacant as of mid-year, with an expected lost rent value of $801 million.

That’s according to a new report by insight firm Switch On Business, which compared second-quarter occupancy data against market rates provided.

Philadelphia's office vacancy rate has hovered around 20% throughout 2024.

While companies are settling into their post-pandemic office plans and long-term hybrid schedules, industry insiders expect more clarity to come in 2025 when a larger number of leases are set to expire. The trends that emerge could chart the course of Philadelphia's office market for years to come.

For now, the office vacancy rate has stabilized in large part due to chunks of space being repurposed for other uses. Still, there's a significant portion of Philadelphia's office supply that's going unused — and it's costing the market hundreds of millions of dollars in potential leasing revenue.

A bite out of the Big Apple

While plenty of Fortune 500 companies have called workers back to the office full time, at least 28.6 million workers — approximately 20% — are working hybrid or remote schedules.

New York has felt that shift more strongly than any other metro in the country. Earlier this year, 105.8 million square feet of office space was sitting empty in the city — an estimated rent loss of $7.61 billion per year.

While New York has seen similar declines in the past, some see the current trends as part of a long-term, broader cultural shift. Much like office-vacancy peaks in the 1970s and 1980s, overbuilding may also be to blame.

“What happens to New York City from here on out depends on the actions we take and the policy decisions that are made,” said Stijn Van Nieuwerburgh, the Columbia Business School professor who coined the term “urban doom loop,” in a statement that accompanied the report.

“In a best-case scenario, we remove 30% or 40% of the office stock in New York City and turn it into wonderful housing," he said. "New York City has all these great amenities, it’s a wonderful place where young people want to live, regardless of where they work."

Of course, those office-to-residential conversions have proven to be easier said than done — in New York and elsewhere.

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