Philadelphia has more ‘vibrant mixed-use’ buildings than peer cities. Is that a good thing?

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Philadelphia’s prime business district is smaller than most of its peers, but has the largest vibrant mixed-use portfolio, according to a new report.

The city was among 19 different American cities studied by CBRE, a commercial real estate consultant, to explore notable market changes between 1990 and 2024.

Some markets have added a significant amount of office space, such as Washington, but relatively little new housing units. By contrast, Philadelphia has added tens of thousands of new housing units, but very little new office space.

Central Philadelphia Development Corporation members leaned in on Wednesday during a discussion between a Center City District executive and the CBRE report co-author about how the local real estate market stacks up to peer cities nationwide.

“The interesting thing about Philadelphia is that compared to others in that [mixed majors] category, its downtown is more mixed use. There’s a lot of office-dependent or office-only areas in peers like Boston or D.C. or Chicago,” said John Stephens, a senior director at CBRE and co-author of the report.

But that’s because there’s been less demand for office space in Philadelphia, which is indicative of a “more muted” economic performance, he said.

Also, Philadelphia has a smaller prime business district than most of its peers; about 8% of the city’s office footprint is dedicated commercial district space with trophy office buildings, according to the CBRE report. About 15% of Washington is a prime business district, the report states, as well as about 12% of both Boston and Chicago.

Commercial districts consisting of only office buildings can be a strength since it’s a big investment by the private sector and is often a center for white-collar jobs. But it’s less resilient when there are downturns in the market, such as during the height of the COVID-19 pandemic, when remote work was more common.

There are two commercial buildings under construction in Center City right now: a $430 million, 18-story office tower at 20th and Arch streets for Chubb, a publicly traded property and casualty insurance company, and a $130 million life science and office building at the corner of 23rd and Market streets.

But Philadelphia had the largest percentage of “vibrant mixed-use” districts, with 24% of the office square footage dedicated to residential with the addition of prime office space, which is concentrated in Market West.

By comparison, about 15% of square footage in Chicago is considered “vibrant mixed-use,” with 10% in Boston and 4% in Washington, according to the analysis.

Some keys to future success of cities included economic vitality, diverse demographics like age and education, quality of life, infrastructure such as transportation, a unique identity and a proactive government, according to the report.

Philadelphia is on track to get even more mixed-use buildings such as The Bourse and Three Parkway, which includes a life sciences innovation hub. The Bellevue has both rentals and a hotel, plus a new PMC Property Group tower at John F. Kennedy Boulevard and 23rd Street in Center City.

And there’s more commercial ground floor with residential above planned for South Broad Street as three of the former University of the Arts buildings have been sold with plans for mixed-use redevelopment.

About 5% of the Center City Philadelphia real estate market are conversions under construction from office space, often older buildings, into residential buildings.

“Philadelphia has a very good track record. In terms of percentage of office stock currently underway, so kind of projected future performance, it’s a bit more middle of the pack,” Stephens said. “Dallas is leading the way.”

Roughly 30% of the Dallas’ office footprint is undergoing conversion from office to residential and mixed-use.

To entice more redevelopment of office buildings with high vacancy rates to convert to something else, the Philadelphia Tax Commission is proposing a 20-year property tax abatement. About 9 million square feet of office was converted into residential across the city when the 10-year tax abatement offered 100% property tax relief over a 25-year stint.

“A lot of [office] conversions ahead of us are maybe not a straight office to residential situation,” said Clint Randall, vice president of economic development for the Center City District. “Some of what’s left likely to be converted is highly complex and complexity means cost.”

And there’s been more creativity in the market, as some conversions are retrofitted offices and residential, like Three Parkway’s life science innovation hub, he said.