Philadelphia’s medical office market is entering a cooling phase after years of steady growth. As a result, demand is declining and vacancy is rising.

Notably, the market recorded negative net absorption in late 2025. During this period, more tenants vacated space than leased new space.

In total, the fourth quarter posted negative 260,000 square feet of absorption. Consequently, the annual total reached negative 323,660 square feet, one of the weakest performances in decades.

Meanwhile, vacancy increased from 8.3% to 9% by year-end. Early data suggests performance remains flat or slightly negative in early 2026.

Leasing activity also reflects the slowdown. Over the past year, tenants signed approximately 757,000 square feet of leases.

However, these deals did not translate into occupancy gains. Instead, tenants focused on renewals, consolidations, and space reductions.

Additionally, the number of new leases declined from 100 to 80 transactions. At the same time, the average deal size dropped 38% to 2,625 square feet.

Importantly, major health systems have slowed new leasing activity. As a result, the market has lost a key driver of consistent demand.