Philadelphia’s office vacancy rate reached 19.6% in January – an increase of 570 basis points from the previous year and the highest in the Northeast. While this figure is just below the national average of 19.7%, underutilized buildings in Center City have prompted downtown landlords and policymakers to explore creative solutions.

In response, the city’s Tax Reform Commission last month unveiled a report proposing an extension of Philadelphia’s existing 10-year property tax abatement to 20 years for qualifying “hardship buildings.” The idea is to encourage the conversion of empty offices into residential or mixed-use spaces — a strategy already embraced by cities like New York and Chicago. Under the plan, developers of financially distressed properties could get up to 90% tax relief for two decades if they commit to adaptive reuse projects within the next five years.

“The impact of COVID and the rise of remote work have created a structural decline in the need for commercial office space and the value of commercial office buildings,” said Matt Stitt, co-chair of the commission. “We can alleviate this crisis and restore vibrancy to our city if, for the next five years, we create a 20-year tax abatement for the conversion of hardship buildings.”

The commission’s proposal also includes additional measures — like grants covering 15% of conversion costs and low-interest loans for historic preservation — for properties that are difficult to retrofit.

Other tax reform ideas on the table include phasing out the Business Income and Receipts Tax (BIRT), which currently adds a 6% levy on gross revenues for Philadelphia-based companies, as well as reducing the wage tax from 3.75% to 3% for residents (and from 3.44% to 2.5% for non-residents). These moves are designed to help keep workers in the city, especially as nearly half of Philadelphia’s private-sector employees currently commute out of town.

Reactions to the plan are mixed. For example, Sarah Maginnis, executive director of NAIOP’s greater Philadelphia chapter, sees the reforms as a potential catalyst for inclusive growth, highlighting the elimination of the BIRT and wage tax cuts as significant benefits. Conversely, Erme Maula from the Tax Reform Advisory Committee warned, “The only thing certain with cuts to the business tax is that big businesses will get more money.”

The proposal comes as local officials prepare to release the 2025 budget. Meanwhile, new office construction has fallen from 3 million square feet in 2023 to just 1 million in 2024. Yet, despite the steep drop-off, this decline could actually offer some relief to landlords in terms of absorption of under-used office space.