Q4 2022 Office Space Report: Philadelphia, PA
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Philadelphia, PA is home to several major corporations and businesses, including Comcast, Aramark, and Urban Outfitters, among others.
The city saw a decline in unemployment, going from 4.9% to 4.5% quarter-over-quarter. Its major metro area had a modest population increase of 0.38% in 2022.
In Q4 2022, Philadelphia’s office space market saw negative absorption, increased vacancies, and declining rents.
General Area Overview & Demographics
Philadelphia’s population is estimated to be around 1.6 million, with a racial breakdown of approximately 42% African American, 34% White, 15% Hispanic, and 7% Asian.
Philadelphia, PA Median Household Income & Population
Household income in Philadelphia varies widely across different neighborhoods and demographics. As of 2021, the median household income in the city was around $54,000, with many residents earning above and below this amount. Many of the city’s residents are also struggling to keep up with rent payments.
The age demographics in Philadelphia show a relatively even distribution, with significant numbers of residents in their 20s, 30s, and 40s. The city also has a sizeable senior population, with many retirement communities and services available.
The city has several renowned higher education institutions, including the University of Pennsylvania, Temple University, and Drexel University. These schools offer a wide range of programs and attract students worldwide.
It’s known for its rich history, cultural landmarks, and major attractions, such as the Liberty Bell, Independence Hall, and the Philadelphia Museum of Art. The city also boasts a vibrant food and arts scene, with numerous festivals and events throughout the year.
Philadelphia experiences a humid subtropical climate, with hot summers and cold winters. The city is prone to precipitation year-round, with an average annual rainfall of around 45 inches.
Summary of Philadelphia Office Space Performance in Q4 2022
Overall vacancies for Philadelphia office space increased from 16.6% in Q3 to 17% in Q4.
Suburban Philadelphia saw the highest vacancy at 19.3%, while the city’s CBD was the lowest at 15.2%.
In the Suburban submarkets, Class B space had higher vacancies than Class A space, while Class A space had higher vacancies than Class B space in the CBD submarket.
Absorption for Philadelphia office space was negative in Q4 2022, recording -240,000 square feet, bringing the annual total to -855,000.
During the fourth quarter, Suburban Philadelphia saw -262,000 square feet absorption, while the CBD submarket totaled a positive 63,000 square feet.
What are office space rents like in Philadelphia?
Philadelphia office space saw rents decrease quarter-over-quarter from $29.29 per square foot in Q3 2022 to $28.62 in Q4 2022.
Class A space averaged $31.36, while Class B was $25.62.
Rents were highest in the city’s CBD at $33.23.
Purchase & Leasing Activity
Sales volume for Philadelphia office space totaled $1.3 billion in 2022, with an average price per square foot of $150.
Leasing activity reached 4.7 million square feet in 2022.
Notable Office Space Deals in Philadelphia in Q4 2022
There were several notable deals that took place for Philadelphia’s office space in Q4 2022:
- Agree Realty Corporation purchased 61,000 square feet for $27 million.
- Intercontinental Development purchased 82,000 square feet for $9.35 million.
- Morgan Stanley leased 31,000 square feet.
- Burns White leased 22,000 square feet.
These are select examples among other activity.
New Office Space Development Activity in Philadelphia in Q4 2022
540,000 square feet of new office space came online in Philadelphia in Q4 2022, the only new supply to become available for the city in 2022.
Philadelphia’s CBD accounted for nearly 400,000 of that product, with the Lehigh Valley receiving the rest.
At the close of 2022, around 750,000 square feet of new Philadelphia office space are under construction.
Market Forecast for Philadelphia’s Office Space Market
Vacancy will almost certainly not recover over the next several quarters.
Flight-to-quality will continue as companies seeking higher-quality space with more amenities will continue to benefit Class A builds while the rest of the market stagnates.
Declining occupancy rates will cause higher loan delinquency rates. Uncertainty in debt markets may cause investors to stay on the sidelines.
Takeaways for Office Space Investors
Philadelphia’s office space saw underwhelming performance in Q4 2022, especially compared to its Q3 2022 results.
Amidst decreasing rents and other market indicators, Philadelphia office space is unlikely to gain momentum soon.
Stay diligent, do your research, and happy investing.
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