Philadelphia's Office Sector has some encouraging fundamentals — but vacancy continues to creep up. In Colliers' third-quarter report, the market averaged a 19.34 percentage rate, up 23 basis points year-over-year.
By submarket, suburban Philadelphia averaged the highest vacancy at 22.3 percent. The outlook is mixed going forward for the overall market.
"Vacancy rates are expected to stay bumpy but trend downward through 2026, Colliers forecasted.
But overall, it was a solid third quarter for office in Philadelphia. Negative Net absorption narrowed from -232,000 to -177,200 square feet. Also, demand remains positive year-to-date.
Colliers referred to investment activity as "punctuated" — but called the pricing "inconsistent." FLD Group-A&H Acquisitions made the largest buy thanks to its $83.1 million acquisition of a 346,659 square foot property in Conshohocken. Mesirow Financial and CSB Holdings-Tide Realty Capital jv followed with their $67.60 million and $45.50 million deals, respectively. The largest space was leased by WSFS, which took 80,000 square feet in the King of Prussia/Wayne submarket.
Overall leasing rates were up by 49 cents per square foot to $30.58 per square foot. Colliers attributed the increase to higher-quality properties.
"Class A buildings continue to attract tenants, pushing asking rents higher. Meanwhile, Class B and C properties face stagnant demand and flat pricing, underscoring a growing divide in the market," it explained.
Also, no new supply has entered the market for at least the past two quarters. Over 205,000 square feet of office product was delivered in the third quarter of 2024. However, 438,000 square feet remains underway — but down from the 582,200 square feet posted in the 12 months prior. Colliers predicts that conversions of both older office towers and Suburban single-story buildings in Philadelphia will continue to shrink the inventory.
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