Philadelphia Office Report – Winter 2020

With office-using job gains outperforming U.S. figures, the metro's office sector is poised for a healthy 2020.
Office-using employment in Philadelphia, click to enlarge
Office-using employment in Philadelphia, click to enlarge

Philadelphia’s office market fundamentals remain strong, despite softening growth at the national level. While the unemployment rate in Philadelphia exceeds the national rate, office-using employment gains outperformed the market’s overall job growth. The metro’s highly educated workforce—boosted by the presence of major educational institutions including the University of Pennsylvania, Drexel University and Temple University—positions the market as an attractive place for corporations to conduct business.

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Asking prices for office space in Philadelphia averaged just under $29 per square foot in November, far less than the national average of nearly $38 per square foot. Office space was 13.2 percent vacant, though steady leasing activity combined with a lack of new supply will likely compress vacancy in the short term. While construction activity was steady with 2.1 million square feet underway, deliveries fell to their lowest point since 2011, with less than 540,000 square feet coming online in 2019 through November. Some 1.5 million square feet is slated for completion in 2020, higher than the market’s 10-year average.

Employment growth by sector in Philadelphia, click to enlarge
Employment growth by sector in Philadelphia, click to enlarge

Investment activity totaled nearly $1.7 billion through November, in line with 2018’s volume of $1.8 billion during the same period. More than half of last year’s transaction volume targeted suburban value-add opportunities, which offered investors significantly higher acquisition yields compared to Philadelphia’s central Class A office inventory.

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