Philadelphia’s office market gains footing after five years of poor demand

 By Brenda Nguyen CoStar Analytics

After enduring five years of negative demand, Philadelphia's office market is showing early signs of stabilization. While the market has not exactly started its recovery phase, the latest data indicates a positive shift as it enters 2025.

For the first time since 2018, annual net absorption — the difference between move-ins and move-outs — has turned positive. Office occupancy increased by 615,000 square feet across the Philadelphia metropolitan area.

Between 2019 and 2023, local companies returned 7.6 million square feet of office space amid uncertainties surrounding the future of work. While recent performance is not enough to undo the damage from recent years, it’s a crucial step toward stabilization and eventual recovery.

Notably, this improvement coincided with a decrease in demand from life science companies, which had been a significant driver for Philadelphia's office market. This suggests the traditional office sector is stabilizing independently of the life sciences.

Demand for office space has varied significantly across different areas within Philadelphia. Downtown Wilmington emerged as a leader in new demand for 2024, with nearly 700,000 square feet of absorption. A notable contributor to this growth was biopharmaceutical company Incyte's acquisition of Bracebridge I and III, which will consolidate its workforce into these newly acquired buildings totaling 517,300 square feet. Owner-occupier purchases like this, which accounted for 20% of Philadelphia’s latest annual sales volume, also contributed to stabilization.

Conversely, downtown Philadelphia continued to see occupancy losses, hitting its fifth consecutive year of negative absorption and ending the year at -710,000 square feet. Several significant lease renewals helped buffer absorption from falling further.

In October, Marshall Dennehy extended a 120,460-square-foot lease by 10 years, while in July, the Defender Association of Philadelphia extended a 117,000-square-foot lease by 16 years. Other companies with a footprint exceeding 50,000 square feet, such as the American Association for Cancer Research, the Philadelphia Office of Property Assessments and the Plenary Infrastructure Philadelphia, also renewed their leases.

While various employment hubs around Philadelphia will experience different paces of recovery, the latest regional totals are encouraging, showing continued improvement year over year. As the office market navigates ongoing headwinds, Philadelphia's adaptability and ability to attract diverse industries will be key factors in its path to recovery.

www.omegare.com