Philadelphia’s office market kicked off Q1 2026 recording approximately 200,000 SF of positive absorption. Currently, 7.4 million SF is available, and the CBD vacancy rate stands at 16.8%.
Looking back to Q2 2023, when I first discussed the “haves and the have-nots,” that divide is even more pronounced today. This is evident in assets such as One Logan Square, Two Logan Square, and Three Logan Square, which are collectively approximately 97% leased.
More recently, market attention has shifted to Commerce Square, which experienced meaningful leasing velocity during Q1.
One Commerce Square — Q1 Leasing Activity
At One Commerce Square:
- Hatzel & Buehler, Inc. — 14,000 RSF
- The Reinvestment Fund — 14,000 RSF
- HDR Engineering — 20,000 RSF
- Morgan & Morgan — 33,000 RSF
- Angeion Group — 17,000 RSF
- DataVault – 24,000 RSF
The Commerce Square complex is currently approximately 91% leased. However, with the pending departure of Walters Kluwer from Two Commerce Square, 45,000 RSF will become available later this year, meaning vacancy will temporarily increase before being backfilled.
It is also worth noting that other well-capitalized CBD assets continue to perform strongly, including:
- Suburban Station – approximately 95% leased
- Mellon Bank Center – approximately 94% leased
After leasing 28,000/RSF—representing roughly 8% of the building—during Q1, 1845 Walnut Street appears to have strong momentum heading into Q2 and beyond.
These are just a few examples of buildings with stable financing and lower leverage that are actively completing the majority of transactions in the CBD— also known as the “haves.”
A Wait & See Approach
With 1835 Market Street and 2000 Market Street emerging from bankruptcy, it is still too early to definitively forecast their long-term trajectories. However, based on the price points at which they were acquired—and assuming the initial leasing momentum continues—there are early indications that a path toward stabilization and recovery may be possible.
One Liberty Place: A Shifting Dynamic
One Liberty Place, located at 1650 Market Street, has long been considered a premier trophy asset in the Philadelphia CBD and a defining feature of the city skyline. Historically, the building has maintained high occupancy with limited vacancy.
However, vacancy appears to be increasing, raising an important question: why is this traditionally stable asset losing tenants to buildings such as Mellon Bank Center and Three Logan Square?
The current vacancy rate in the building is approximately 23%.
Several factors may be contributing. These could include:
- The building’s proximity to the struggling 15th Street corridor
- The increasing presence of non-business traffic within retail corridors
- Tenant preference for newer or recently modernized space, particularly among firms unwilling to endure ongoing or future renovation cycles.
What is clear, however, is that the building is entering a more competitive leasing environment.
This dynamic becomes even more notable given that its anchor tenant, Cozen O’Connor, is rumored to be considering a significant reduction in space as its lease approaches expiration in the coming years.
Taken together, these factors suggest that even historically strong assets like One Liberty Place may face increased competitive pressure and a longer path toward stabilization.
Other Market Observations
1600 Market Street has available space and remains a stable asset with a strong amenity offering, but its price point places it at the higher end of the Class A market and may not be suitable for every tenant profile.
Conversely, buildings that remain tied up in receivership, special servicing, or other forms of financial distress face a much longer and more uncertain path back to health. Until ownership structures are resolved and meaningful capital is deployed to reposition these assets, their ability to compete with healthy alternatives will remain significantly limited.
Rental Rate Trends
With asking rates north of $50/SF in buildings such as Three Logan Square and Mellon Bank Center, trophy assets continue to achieve pricing levels rarely seen in the Philadelphia CBD.
The gap between best-in-class properties and the broader market continues to widen, and this trend is expected to persist.
Current CBD rental rates are approximately:
- Trophy Class: $49.00 / SF
- Class A: $33.00 / SF
- Class B: $28.00 / SF
- Class C: $23.50 / SF
Conclusion — The “Haves vs. Have-Nots” Is Becoming Structural
What we are seeing in the Philadelphia office market is no longer simply cyclical… it is increasingly structural.
Buildings with strong ownership, access to capital, and the ability to fund leasing costs and tenant improvements are capturing the majority of tenant demand and maintaining higher occupancy levels.
On the other hand, assets facing capital constraints, near-term debt maturities, or limited leasing resources are struggling to compete—regardless of location or historical prestige.
The market has clearly bifurcated, and performance is now being driven not only by the quality of the real estate itself, but also by the strength of the balance sheet behind it.
At the same time, the continued removal of outdated and functionally obsolete office product, such as the conversion of a tower at Centre Square to residential use, will continue to reduce overall office inventory in the CBD.
As this occurs, well-capitalized assets will likely gain further leverage, and landlords with strong financial backing will be positioned to push rental rates as the supply of high-quality space becomes more limited.
Ultimately, in today’s environment, financial strength and the ability to invest in assets may prove just as important as location and building quality.
If you have questions about the current market, your existing lease, or are considering relocation, renewal, or long-term planning, I would be happy to discuss how these market conditions may impact your specific situation.
Every tenant’s circumstances are different, and thoughtful planning can often uncover opportunities that are not immediately obvious. Please feel free to reach out at any time to continue the conversation. In a market that continues to evolve, informed decisions and the right guidance can make all the difference.
Sincerely,
Ken
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