February 2025
Quarterly Market Update Q1 2025
Section 1: Center City District
Boundaries
Section 2: West Market Office District
Center City District Boundaries
3 Key Takeaways Within CCD
Boundaries
174 Leases Signed 2024
Q4 2024 Office Occupancy 80.8% Down 0.6% QoQ
December ’24 RTO Rate: 75%
Up 25 MoM Up 1% YoY
The number of office leases signed within the CCD boundary decreased 12% in 2024 compared to 2023 but grew around 15% on a square footage basis, thanks to a couple larger renewals. Total office vacancy continues to hover around 20%. Employee volumes within CCD boundaries during typical office hours are around 75% of pre-pandemic levels.
Leasing Activity by Quarter (Class)
The flight to quality is continuing. On a square footage basis, 43% of office leasing in 2023-2024 occurred in Trophy buildings (compared to 44% in Class A buildings and just 13% in Class B buildings). Trophy buildings make up only 20% of the CCD office inventory.
Leasing Activity by Quarter (Direct/Sublease)
Direct deals with landlords make up the overwhelming majority of leasing. Much of the market's sublease space is in older, commodity assets that are poorly positioned to compete for most of the larger tenants in the market, many of which are law firms who typically seek out high-quality fit-outs.
The limited amount of high-end sublease space available, such as Comcast's vacated floors at Three Logan Square, are seeing a lot of activity and successfully backfilling with smaller tenants.
Significant Deals (Q4 2024 – Q1 2025)
Polsinelli
Three Logan Square
Relocation with expansion
40,790 s.f.
One of the larger deals in 2024, the firm will occupy two floors at Three Logan Square by summer 2025, expanding from one floor at Two Logan Square.
Marshall Dennehey
2000 Market
Renewal with contraction
120,462 s.f.
This defense litigation firm is one of Market West's largest occupiers and is notably downsizing by just 10% in its renewal. Recent deals show that large law firms have typically downsized by around 40%.
Significant Deals (Q4 2024 – Q1 2025)
SIMPLi
1429-33 Walnut
New lease (inbound)
3,400 s.f.
This food startup relocated to Philadelphia from Baltimore as it pursues rapid expansion. Its products are sold in 3,000 stores, up from just 100 two years ago. The company has 20 Philadelphia employees and is hiring for 10 open positions.
Royer Cooper Cohen Braunfeld
Three Logan Square Relocation with expansion
17,754 s.f.
This expansion nearly doubles the law firm's footprint in Center City, where they now occupy a full floor of Comcast sublease space at Three Logan. The firm also expanded their presence in Conshohocken.
Vacancy by Class
2024 continued the postpandemic trend of Class A buildings losing occupancy at the fastest rate. Within this class, more than a quarter of all space is vacant as we start 2025 – more than double the vacancy in Trophy buildings which have outperformed in terms of their leasing activity.
Absorption by Class
Buoyed by a strong Q1, Trophy net absorption – the measure of change in occupancy – started and remained net positive throughout 2024. Net absorption was negative for the combined balance of the inventory (all Class A & B properties).
14% of the inventory contains 50% of the vacancy
Just over a dozen buildings account for a majority of downtown office vacancy, mostly due to large tenants shrinking or relocating within the city.
Large tenants (those occupying 100,000 square feet or more) are relatively rare in the Philadelphia market. Average deal size for Center City offices tends to hover below 10,000 square feet, so eliminating vacancy from just one of these properties would require two dozen new or expanding tenants.
Return to Office
CCD Boundary – Weekdays 8 a.m.-6 p.m.
Across CCD's boundaries, employees were back on weekdays at an average 73% of pre-pandemic totals in 2024, improving upon 2023 volumes.
Comparing the second halves of 2023 and 2024, a larger share of the workforce was back in Center City this year with the exception of November.
Return to Office Rates Comparison Across Employment Centers
The trend in RTO rates can be simplified into a single statement: The closer your employees live to their place of work, the higher rates in which they have returned to the office.
Philadelphia’s experience is broadly reflected both in other large cities as well as high-performing suburbs.
Intensive residential development around employment nodes is a employee attraction and retention strategy in and of itself, particularly where transportation alternatives are available (car-centric Houston sees less variability in RTO rates across distances).
Center City District Employee Return Rate
by Home Location – 2024 Average
Proximity is the strongest indicator of showing up: last year, nearly 9 in 10 workers within two miles of Center City employment were back on average, with RTO rates dropping precipitously as commute distances increase.
This is a strong argument for maintaining and reinforcing the virtuous circle of residential infill development in Greater Center City and its ability to establish a high-density workforce that creates more demand for downtown office space.
West Market Office District
West Market Office District – Recent Retail Leasing
Cake and Joe
1735 Market
1,200 s.f.
Five Iron Golf
Three Logan Square
4,800 s.f.
Unnamed Japanese Restaurant
1515 Market
TBD
This will be the third location for South Philadelphia-founded Cake and Joe, which operates in Pennsport and Fishtown. This brings a much-needed coffee and food offering to the primary office corridor.
Also opening a third location in Philadelphia, Five Iron Golf will bring an experiential activity to the office district, expanding options for happy hours, corporate outings, and wellness events.
A new concept from local restaurateur Teddy Sourias, who operates the adjacent Uptown Beer Garden, will replace the HSBC Bank with an active use that can draw activity into the evening hours. Timing is TBD.
American Credit Union
1760 Market
TBD
The long-vacant space at 1760 Market will soon be home to a credit union.
West Market Office District – Conversions
1701 Market Underway
300,000 s.f.
Now called 17 Market West, the 18-story building will deliver 299 new apartments to the office district this spring. The building's ground floor offers significant retail space that could further animate both Market Street and JFK Boulevard.
2100 Arch Underway
121,500 s.f.
MM Partners is undertaking this conversion, which will bring more residential density to Arch Street along the northern edge of the office district.
West Market Office District – Conversions
Three Parkway Underway
175,000 s.f.
The lower stack of the building, recently vacated by Drexel, will accommodate 193 apartments while the top ten floors of the building will remain as office.
Ten Penn Center Proposed
675,000 s.f.
JLL is in the market with this Penn Center office tower, the largest building to come up for sale in several years. A partial conversion to residential in the upper stack of the building is one idea being considered.
West Market Office District
Employee Recovery – 2024 Average
While the rate of return is not as high within the West Market office district as it is across the more diversified CCD area overall, the trend holds: 2024 saw more of the workforce back on average than 2023. The second half of 2024 saw an average employee recovery rate of 65% compared to 57% during the same period a year prior. This reflects new work policies from major employers and bodes well for nearby retail and restaurants.
West Market Office District – 2024 Average
The broader trend of proximity heavily influencing RTO holds in the West Market office district as well: 80% – 4 out of 5 employees – are back among those living 2 miles or less from the office, with volumes dropping precipitously the farther workers live from Center City.
The stronger performance across the larger CCD boundary reflects a more diversified employment base: The daytime population beyond the office district captures more health care, service, and retail workers whose jobs mostly require in-person work.