Philadelphia Office Demand Shifts From Trophy To Class-A

Office tenants in Philadelphia's central business district are starting to look beyond new trophy buildings to older Class-A space, according to a midyear forecast from CBRE. The brokerage found the CBD's total vacancy rate was 23.1% last quarter, with a sustained flight-to-quality trend underway despite a stalled construction pipeline.

CBRE Greater Philadelphia Market Leader Mamadou Baldé said the demand will bounce down into Class-A buildings out of necessity. The shift has been slower in Center City than in the suburbs due to complex debt issues plaguing many Class-A property owners.

Debt Hurdles Slow Market Shift

The loans used for a wave of purchases when interest rates were low are now maturing in a much higher-rate environment. CBRE Executive Vice President Doug Rodio explained that many Class-A-plus buildings are facing troubled capital stacks, preventing landlords from structuring new lease deals.

"A lot of these landlords did a great job in executing their business plan and renovating their assets and pushing rental rates but now come to the end of their loan period in a different capital markets environment," Rodio said. This lack of access to capital means owners often cannot fund tenant improvements or execute deals, according to Baldé.

CBRE's forecast predicts these Class-A landlords will be unable to raise asking rents until late this year or early next.

New Ownership Drives Leasing Activity

The market is beginning to change as some distressed assets are acquired by better-capitalized owners. Rodio highlighted 2000 Market Street as an early example. CSB Holdings and Tide Realty Capital bought the building for $45.5 million in August 2025 and have since increased occupancy from 67% to 75% through net new leases.

That transaction was the first post-pandemic sale of a Center City office building that wasn't converted to another use. The new owners borrowed $50 million from Citadel Credit Union to continue the lease-up, which was the largest loan in that bank's history.

Another example is 1760 Market Street. An entity linked to Giller Realty bought the 15-story property for $11.5 million in 2024, a steep drop from its $31.5 million sale price in 2018. Rodio said the new owner is signing a flurry of leases by offering quality space at attractive rates in a good location.

A Broader Market Shift Forecast

While debt restrictions continue to hinder many existing owners, CBRE anticipates a broader shift as more Class-A buildings return to the market under new ownership. The brokerage predicts the submarket's vacancy rate will peak this year. The activity at 2000 Market Street and 1760 Market Street demonstrates how new capital can unlock leasing velocity in older buildings.

Rodio stated that these owners are committed to operating the properties as offices and are succeeding by providing high-quality space at competitive rental rates.