Philly's Lagging Job Recovery Is A Millstone Around Center City's Neck

Philadelphia's downtown recovery has come a long way since the pandemic, but it is lagging peer and neighboring cities in one of the most crucial areas: jobs.

Philly had only recovered 70% of the 126,500 jobs it lost during the first two months of the pandemic by February, Center City District found in its annual State of Center City report. Nationwide, about 87% of jobs had been recovered in the same interval, while for the greater Philadelphia region, that number stands at 84%.

Center City office buildings are still only 51% as full as they were in the months before the pandemic, but job loss between the first two months of the pandemic and this past February was in the single digits for office-using sectors. Restaurant, hospitality and leisure service jobs were down 28% over that time period.

"The absence of professionals, the reluctance of some to come back to offices, could result in the permanent loss of many building maintenance, transportation, retail, hospitality and service jobs that rely on face-to-face interaction," CCD CEO Paul Levy said in his introductory statement to the annual report.

The economic impact of fewer behinds in office seats goes beyond supportive and service businesses losing customers. Philadelphia relies on a wage tax for an outsized portion of its revenue compared to most other cities, and workers based in the suburbs who were allowed to work remotely full time were exempt from paying wage tax.

At the leasing level, Philly's core office market rose from 12.7% to 18.3% vacancy from 2019 to the end of 2021, leaving it with essentially the same vacancy rate as the central business district of Chicago, one of the cities hit hardest by pandemic-era migration trends. But in the fourth quarter, Philly office absorption turned positive for the first time since the first quarter of 2020.

Several owners of office properties losing tenants have been looking into converting their spaces to life sciences, in keeping with the dominant trend in the city, but the CCD report does not indicate that further hemorrhaging of space will be severe. A survey the organization conducted of 114 downtown employers in January, after the omicron variant threw yet another curveball at office tenants, found that 63% of respondents expected to keep their current footprint, 21% anticipated contracting their space and 16% expected to expand.