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hiladelphia’s office market is in a sharp downturn, and the timing is right for buyers. In the past year, several Center City towers have sold for less than half their former prices and assessed values, drawing interest from residential developers and investors from outside the city. The 29‑story, 665,000‑sq‑ft tower at 2000 Market St. sold in 2018 for $107.7 million. In August, Maryland’s Tide Realty Capital and New York’s CSB Holdings bought it for $45.5 million, planning to keep it as an office building. “We are somewhat contrarian investors,” said Tide’s president Aaron Loeb. “Office has challenges, but we believe strongly in the asset class, especially in gateway cities like Philadelphia.”
The 27‑story, 675,000‑sq‑ft building at 1801 Market St. changed hands last month for $30 million to PMC Property Group, which will keep part of the space as offices and convert the rest to residential. The property last sold in 2006 for $75 million, or $144 million in today’s dollars. Analysts and brokers expect similar sales soon. Several large buildings are in financial distress: Centre Square (1500 Market, 1.8 million sq‑ft), 1818 Market (almost 1 million sq‑ft), 1515 Market (502,000 sq‑ft), and One South Broad (475,000 sq‑ft).
An Inquirer study of city tax assessments found Philadelphia’s large office buildings were worth about $9.8 billion in 2019, slightly higher than today. Adjusted for inflation, that’s a 28% decline over six years. Of 197 office properties worth $5 million or more, most saw flat or falling values, and 10% dropped 25% or more. The analysis does not include ongoing assessment challenges or future contests. As buildings sell at steep discounts, owners have successfully appealed the city’s latest assessments, which determine property and other taxes. Last year, roughly one in five commercial properties filed new appeals, seeking lower official valuations.
The tax valuation of Loeb’s 2000 Market is listed at $102 million, a figure the previous owner had already challenged before the sale. “I have six to eight more large office properties in Center City that have not yet been resolved in 2025 and 2026,” said Peter Kelsen, a Blank Rome real‑estate partner who has challenged city assessments for decades. “There’s more to come.”
These declines cut city property‑tax revenue. Philadelphia receives 44% of every property‑tax dollar, the school district 56%, and all proceeds of the Use and Occupancy tax, also based on assessments. Center City District, a nonprofit business‑advocacy group, derives much of its budget from assessments on commercial properties, so the falling values strain its finances, as do sister groups like Old City District.
The impact on the city’s fiscal health has already cost millions. Rob Dubow, longtime finance director, said falling office assessments have cost the city about $6 million annually. He argued the effect is limited by Philadelphia’s tax structure and the historically weak office sector. The city budget is dominated by the wage tax; property taxes are only 15% of the $6.8 billion budget, and office buildings are a small fraction of that. “Our valuations are heavily skewed toward residential because we have so many residential properties,” Dubow said. “Office buildings are a relatively small segment of our property tax, which is a relatively small segment of our overall budget.” He downplayed the risk of further appeals, saying “appeal losses are built in going forward.”
The school district faces a harsher hit. It already drew on reserves this year to balance its budget and projects a $15 million deficit next fiscal year, rising to $2 billion in five years. The district receives the majority of every property‑tax dollar and all Use and Occupancy tax revenue, so the loss from falling office assessments is over $10 million annually. “This is something that definitely would be better if it’s going the opposite direction,” said CFO Michael Herbstman. “But it’s not one of the things that gives me the most heartburn. There’s bigger changes that we’re facing at the state and federal level.”
Center City District, which provides cleaning, events, research, and security services for downtown Philadelphia, relies heavily on fees from property owners based on the city’s assessment of property values. When office valuations fall, the amount those owners pay to CCD falls too. The district declined to comment. “It’s inconceivable that they aren’t getting hurt by this,” said Richardson Dilworth, a Drexel professor who studies business improvement districts. “They’re the most sophisticated, they have the largest staff, so they’re also in the best position to look for additional funding and know how to adjust themselves.”
Despite the downturn, there is some hope. The city is factoring in $5.6 million in additional appeal losses annually, Dubow said, noting that the office sector’s decline has been offset by strong residential property markets and assessments for non‑office commercial buildings. Still, the value of Center City’s large office buildings is unlikely to rebound soon. A recent CBRE report shows almost 23% of Center City office space is vacant, not counting major blocks like the Wanamaker Building that have been taken out of the market for residential conversion.
The vacancy is not due to an exodus of tenants. Philadelphia has not lost many major office tenants post‑COVID, but it hasn’t added many either. Legacy users have reduced square footage because hybrid work means fewer staff are in the office at once. Many law firms remain in Center City but have dramatically cut their footprint. Saul Ewing, for example, went from 130,000 sq‑ft pre‑pandemic to 70,000 sq‑ft now. Dilworth Paxson reduced its space by 40%. Universities have also pulled back from third‑party‑owned office buildings, with Drexel and Penn moving downtown operations to University City and Temple purchasing a vacant former University of the Arts building.
“The bigger challenge is the size of the tenants, which continues to shrink,” said Tom Weitzel, managing director at JLL’s Philadelphia office. “You still have strong demand to work in the city, but the number of 100,000‑plus‑sq‑ft tenants is fewer and fewer.”
Still, the highly discounted sales of office buildings are not all doom and gloom. “The vibe is different, the return‑to‑office conversation is no more,” said Brent Hutchinson of BOMA. “Most people are back, and that’s only going to help with the leasing momentum as we move forward.”
Some tenants who leased short‑term space in the post‑COVID years are realizing they underestimated the amount of space they need even in a hybrid environment. “When I look at the office market on a go‑forward basis, it feels like there’s some green shoots,” said Brett Grifo, executive managing director at Newmark. “There’s more room for optimism over the next 12 months.”
As some office space is purchased at extreme discounts, new owners can afford to renovate while still offering somewhat cheaper rents. Others, like the new owners of 2000 Market, plan to invest in high‑end individual office spaces to attract tenants in the portion of the building that remains unoccupied.
“We think Philadelphia is a vibrant downtown office market with a lot of potential to come back strong in this current cycle,” Loeb said.
