Executive Summary

Commercial real estate is entering a recalibration phase in 2025, with commercial real estate investment volume increasing by 14% YOY in Q1 to $88 Billion. Though macroeconomic volatility remains, industrial and multifamily segments are rebounding, aided by stabilizing rates and renewed investor interest. In the Greater Philadelphia region, multifamily investment volume has surged over 100% YoY, with workforce and university-adjacent housing proving especially attractive. 

Philadelphia is diverging from national trends across several dimensions. In multifamily and industrial, the metro is outperforming. Meanwhile, the office sector remains sluggish due to soft return-to-office patterns and an overhang of sublease availability. Retail corridors—particularly neighborhood-based districts like East Passyunk and Fishtown—are benefiting from hyperlocal demand and tenant-led leasing activity. Last-mile logistics and transit-accessible multifamily continue to show the strongest fundamentals.

As the Urban Land Institute (ULI) notes, “Capital will remain highly selective, with a focus on durable income, functional design, and urban-suburban hybrids that reflect post-pandemic user preferences.” In this context, Greater Philadelphia’s infill density and diversified economic base provide a strategic advantage for mid- to long-term investors.

National and Local Economic Context

National GDP growth stands at 2.3% YoY, with the Philadelphia region slightly trailing at 1.8%. Unemployment locally is 3.8%, below the national average of 4.1% (BLS, May 2025). Wage growth has stabilized at 3.7%, and CPI inflation in Philadelphia is at 2.9%—modestly below the national average.

The Federal Reserve’s Beige Book notes that regional economic activity remains modest. “Nonfinancial services continued to expand, but consumer spending and tourism softened slightly due to elevated prices.” Still, wage gains are holding in healthcare and education, Philadelphia’s strongest employment sectors.

Population growth remains low but positive, with 0.25% YoY regional gains (Census Bureau Vintage 2024). Suburban counties like Chester (PA) and Gloucester (NJ) are absorbing the bulk of migration, supported by affordability and job access.

Capital Markets and Investment Trends

National CRE lending is down 17% YoY, with lenders cautious across the board (Trepp, July 2025). In Philadelphia, local banks are limiting exposure to office, while showing more interest in multifamily bridge loans and construction lending for industrial.

Cap rates for industrial and multifamily have held firm in top-tier submarkets. Office yields continue to expand as investors price in longer lease-up periods and capital expenditures. Nationally, institutional capital is reentering cautiously—particularly for core urban product—while private investors are active in mid-market deals.

Philadelphia investment volume is up 22% YTD, outpacing national growth. Industrial assets have posted +3% YoY pricing gains. Office has fallen by approximately 6% YoY due to sluggish leasing. ULI projects that “urban-suburban hybrids and transit-linked submarkets will drive risk-adjusted returns through 2026,” a trend visibly playing out in Greater Philadelphia.

Multifamily Market

Philadelphia’s multifamily sector is one of the strongest in the region. Rents have climbed 3.1% YoY (Zumper, June 2025), reaching a median of $1,700. Apartment List reports a more modest 1.1% YoY increase, but notes momentum building in suburban nodes. Center City has seen institutional acquisitions resume, including Cantor Fitzgerald and Harbor Group International’s $138 million purchase of 2116 Chestnut Street. This price equates to $431,000 per unit by the out-of-town investors, which surpasses several other recent sales. Suburban acquisitions by institutional investors are occuring as well, one example being Equus Capital’s $73 million acquisition of Jacobs Woods, a 230-unit luxury multifamily community in Lansdale, PA.

Center City Philadelphia has successfully repurposed over 10 million square feet of outdated office space since the late 1990s, positioning itself as a national model in adaptive reuse (CCD State of Center City 2025). Notable active conversions include 1701 Market (300,000 SF), Three Parkway (175,000 SF), and 2100 Arch (121,000 SF). Additionally, Ten Penn Center is under consideration for partial residential redevelopment. The Wanamaker Building is also being transformed, with 600+ residential units planned to begin construction in 2026. 

Absorption continues to outpace deliveries in several submarkets, and Philadelphia’s renter base—rooted in its “Eds & Meds” economy—remains stable. Investors are especially drawn to Class B workforce housing and well-located suburban product with upside through renovation.

Office Market

The office sector remains the most challenged asset class. As of May 2025, the Return to Office (RTO) rate within the Center City District (CCD) reached 70% of 2019 levels, reflecting a 6% increase month-over-month and a 3% rise year-over-year. Nationally, Philadelphia is outperforming comparable cities, with a non-resident worker return rate of 74%—surpassing Lower Manhattan and matching Boston. Workers who live within two miles of downtown are returning at rates close to 90%, underscoring the importance of urban proximity in shaping workplace behavior. Engagement programs such as CCD Sips have proven effective, attracting an additional 5,500 workers midweek to the West Market office district. Additional activations like Center City Sunrise and the Workspace Marketplace further enhance the downtown office experience. Prominent law firms are showing renewed confidence in Center City.According to Trepp, “Now may be the time to buy—but only for sponsors who can underwrite long-term performance in a structurally smaller office footprint.” Tenant preferences continue to migrate toward Class A buildings with flexible floorplans and wellness amenities. However, many high-vacancy Class B assets are unlikely to rebound without significant repositioning or adaptive reuse.

One area of strength that Blueprint has identified in the broader office sector is the need that has emerged for smaller footprint flexible and creative office space in Center City and the surrounding neighborhoods. Through work with clients as well as speaking with other industry professionals, there is a need for high quality creative space for small to medium sized companies - whether it be architectural/design, law, finance, or non-profit users. Companies are no longer settling for typical office space, they are looking for visually appealing suites with building amenities such as shared conference rooms and meeting space that employees and clients/customers will want to travel to. As owners of high-vacancy office assets look to reposition their properties, they would be smart to consider this type of user if their building footprint will support it.

Retail Market

Retail is a bright spot, especially in urban corridors like Rittenhouse Row, East Passyunk, and Fishtown. These neighborhoods are benefiting from foot traffic, community engagement, and a growing base of both national and independent operators. According to the July 2025 Retail Market Report, “Tenant demand remains concentrated among food-and-beverage operators and boutique local retailers.”

Retail storefront occupancy across Greater Center City has stabilized at 83%, with pedestrian volumes reaching 90% of pre-pandemic levels (CCD State of Center City 2025). The retail landscape is evolving quickly, with a combination of high-profile openings and anticipated arrivals in Rittenhouse. Aritzia, Veronica Beard, Abercrombie & Fitch, All Aboard Candy, Equinox and Cafe Musette have recently opened their doors, while brands like Jordan World of Flight, Catbird, and Mitchell & Ness are expected soon. 

Fishtown and East Kensington are seeing explosive growth in the food and beverage space as new retail and mixed-use developments are completed. Percy Restaurant & Bar, Amá, and Emmett have recently opened. Additionally, Mecha Noodle Bar will be opening its first Philadelphia location in the neighborhood.

Grocery-anchored centers in dense or affluent suburban areas are also continuing to see strong leasing activity. Rent growth is positive, and new lease deals are being signed above pre-pandemic levels in high-demand corridors.

Nonprofit Sector

Nonprofits remain a foundational tenant class across Greater Philadelphia, particularly in healthcare, education, and the mission-driven office space. In 2025, the sector is contending with tighter federal and state funding, rising costs, and policy uncertainty. Leasing activity has slowed, with delays in decision making in regards to renewals and expansions—especially among providers dependent on state and federal reimbursements.

While near-term headwinds persist, organizations with philanthropic capital or access to low-cost financing remain active. Stabilization of public funding could unlock new leasing and acquisition activity in the second half of 2025.

Industrial Market

Philadelphia’s industrial market continues to lead regional CRE performance. Vacancy remains under 4% metro-wide, with logistics users focused on last-mile access to I-95, I-295, and PHL Airport. Owner-user demand is especially robust in Southern NJ and Bucks County.

The CoStar July 2025 Industrial Market Report notes, “User demand remains especially strong in infill locations with port and interstate access, driving sustained absorption even as new supply delivers.” Institutional buyers remain active, and competition for zoned industrial land remains intense.

One notable transaction highlighting these dynamics is snack-maker Herr’s agreement to sell 123 acres in East Nottingham Township to Eli Kahn’s E Kahn Development Corp., which plans nearly 1 million square feet of modern warehouse space across three buildings. As Kahn explains, “Competition for entitled industrial land remains intense. Well-located sites with highway access continue to see strong user and investor demand despite higher capital costs.”

This commentary underscores a critical trend: even as borrowing costs remain elevated, the scarcity of zoned, highway-accessible industrial land continues to drive land values and sustain demand from both occupiers and institutional buyers. These fundamentals are expected to keep Philadelphia’s industrial vacancy among the lowest in the Mid-Atlantic through year-end.

Hospitality Market

Hospitality is in a sustained recovery. RevPAR and ADR are both up YoY in Center City, with Q2 occupancy surpassing 70%. Convention business is rebounding, and tourism is showing strong summer momentum. However, underwriting remains conservative due to rising insurance costs and deferred CapEx in aging assets.

Operators are focused on enhancing amenities, while investors are targeting stabilized product or repositioning opportunities. Ground-up development is limited but office-to-hotel conversions are gaining traction.

Stakeholder Insights

Lenders are cautiously active, with a preference for multifamily, retail and industrial. Office underwriting remains tight.

Developers face construction delays and cost inflation, especially in the hospitality and urban multifamily sectors.

Brokers report healthy activity in multifamily, retail and industrial; office brokers face longer cycles and greater TI demand.

Tenants increasingly demand mixed-use, transit-accessible, and wellness-focused environments.

Investors are showing interest in distressed office, value-add multifamily, and stable urban and suburban retail.

Risks and Opportunities

Macro Risks:

• Interest rate volatility amid uncertain Fed policy

• Political risk surrounding the current administration’s policies

• Rising CRE insurance premiums and credit tightening

Regional Risks:

• Construction costs up 7–10% YoY

• Wage stagnation in urban submarkets

• Uncertain tax environment in Philadelphia

Opportunities:

• Office-to-residential or lab conversions in Center City

• Transit oriented development projects in collar county markets

• Life sciences growth anchored by Penn, Drexel, CHOP

• Cold storage and small-bay warehousing demand along I-95

2025–2026 Outlook by Asset Type

Multifamily: Rents expected to rise 2.5–3.5% annually. Cap rates may compress in transit-linked submarkets.

Office: Distressed Class B product may become repositioning candidates. Demand will stay focused on Class A.

Retail: Continued strength in urban corridors and service-oriented leasing activity. Low vacancy will continue in strong grocery-anchored suburban centers.

Industrial: Rent growth projected above 6% in infill zones. Institutional interest will keep cap rates competitive.

Hospitality: RevPAR and ADR expected to grow 4–6% YoY. Conversions and renovations will drive investment themes.