How to Save Center City’s Empty Offices

Center City’s empty office space has reached a true crisis point. / Photograph by Jumping Rocks/Universal Images Group via Getty Images

For the last few years, in the wake of COVID-19, people have been anxious about Center City’s office buildings. With so many companies adopting work-from-home and hybrid-work policies, lots of office space in our downtown sits empty.

But COVID hasn’t been the only problem. Our vacant buildings also reflect decades of high city taxes on business and workers, which have driven companies and their employees away. I’ve never been an alarmist, but as I look at the latest numbers, I believe we’ve reached a true crisis point — one that threatens the future not only of Center City, but Philadelphia overall.

If we’re going to avoid disaster, we need to take major steps right now. And the most pressing thing we have to do is make Philadelphia more inviting to business.

Bad Numbers, Bad Trends

According to the latest statistics, Center City’s 43.4 million square feet of office space has 10.2 million sitting vacant. That’s a vacancy rate of almost 24 percent — nearly double what it was in 2019. And the situation is only going to get worse: Thanks to expiring leases, vacancies are projected to grow by at least one million square feet per year through 2027.

Why is this such a big problem? For starters, empty offices mean that Center City office buildings are worth far less than they used to be. According to the Office of Property Assessment, the assessed value of downtown office buildings has dropped $1 billion in the last several years. That means the city is poised to lose out on hundreds of millions of dollars per year in property tax revenue from those buildings. The response will almost certainly be significant cutbacks in city services and funding for schools — not just downtown, but citywide.

The ripple effects don’t end there. Empty office buildings also mean fewer jobs for maintenance staff, security guards, and other service employees who take care of those buildings, as well as less foot traffic for downtown restaurants and retailers. Without those great stores and places to eat, Center City actually becomes a less appealing place to live. That could spur a second crisis in the residential real estate market.

What we’re talking about here is the definition of a vicious circle, with Center City spiraling downward to the days of the 1970s and 1980s where jobs and residents left the city in droves — and then residents across the city will be paying the price.

The Real Problem

There’s no doubt COVID has been damaging, but the challenge we now face in terms of disappearing office jobs stems just as much from something else: the fact that Philadelphia has the highest business taxes of almost any major city in the country.

We’re now in crisis because of neglecting that onerous tax burden, which has driven businesses out of the city and prevented new ones from coming in.

In Philadelphia, businesses pay a tax of 1.14 percent on their gross revenue and 5.81 percent on their net profits. In contrast, in cities like Boston and Baltimore — not to mention all the counties surrounding Philadelphia — business taxes are zero. If you’re an executive deciding where a corporation will locate its headquarters, or even a small business owner deciding where to set up shop, where would you go? And our business taxes are on top of one of the highest wage tax rates in the country!

We’ve been paying the price for this negative growth tax policy for years. Even before the pandemic, Philadelphia was among the slowest-growing large U.S. cities when it came to jobs, with just 1.2 percent employment growth from 2011 to 2019.

It’s our residents who pay the price for this. In a 2024 analysis by a Harvard-based research group, Philadelphia ranked 50th — dead last — among 50 U.S. metropolitan areas when it came to economic mobility.

Put another way: Poor people are more likely to stay poor in Philadelphia than they are anywhere else. Or maybe even get poorer. According to the same study, a child born to a low-income family in Philadelphia in 1992 made $31,000 per year at age 27. That was $6,000 less than what someone born in 1979 made when they were 27.

High business taxes were bad even in the best of times. But in our current contracting office market, they’re truly devastating since even companies that still want and need office space will think twice about choosing Philadelphia. Want proof? Of the over 500-plus new office leases signed in Center City last year, less than 10 involved outside companies. All the rest were signed by firms that were already here — and most of them chose to downsize.

No More Band-Aids; We Need a Cure

So what can we do? First, we need immediate help from the federal and state governments, mostly in the form of tax credits, to help lower the cost of building out dated office space so landlords can fill these office buildings with new companies that employ our residents and pay taxes. (The credits won’t make building owners rich. They’ll simply allow office buildings to possibly lease the empty space.) Last year the commonwealth of Pennsylvania committed more than $60 million to helping Pittsburgh revitalize its downtown. Given that we send even more tax dollars to Harrisburg than Pittsburgh, we should get at least that kind of commitment or more from the state.

But if we want to have a fighting chance, it’s time for us to finally scrap our decades-old business tax structure so that Philadelphia becomes truly competitive when it comes to creating and retaining jobs. There are many paths we can take to get there, but we need to commit to completely eliminating the net income portion of the Business Income Receipts Tax (BIRT) over the next decade to attract and retain companies with good paying jobs.

The stakes of what we’re facing couldn’t be higher. And if we’re not willing to help ourselves get out of the crisis, why do we think anyone else will come to our rescue?

Allan Domb serves on the city’s Tax Reform Commission, which was created last year by City Council.