Well, of course it has been observed, and I'll come back to that, but first let's be sure we're talking about the same things.
When two populations of any one species are separated by, for examples a body of water or mountains, the two populations begin to "drift" genetically away from each other.
Consider humans in different parts of the world, all still 100% human but each region with different characteristics -- that's genetic "drift".
Evolution theory simply says that if separations continue for, say, millions of years, the different populations will "drift" so far apart they can no longer interbreed, hence by definition they are new species.
Prime examples include Indian & African elephants, or lions & tigers.
Where have we actually seen it happen?
Dogs are classified as a sub-species of ancient wolves and cattle (Bos taurus) are classified as a separate species from their ancient Auroch (Bos primigenius) ancestors.
Fossils & DNA suggest that greater changes, at the genus, family or order level, can take millions or tens of millions of years, a time period far beyond the range of human direct observations.
Since it cannot be observed over such long time-periods, evolution of species is classified as a theory, not fact.
Then we agree that one species changing to another has never been observed.