Q2 2012 Philadelphia, Pennsylvania Office Property Sales Analysis

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Q2 2012 Philadelphia, Pennsylvania Office Property Sales Analysis

Metro Volume and Pricing

As of the date of this report, Reis has yet to identify a single qualifying single-property office investment sale in the Philadelphia market in the second quarter of 2012, and other market watchers also report a stall in activity.* First quarter sales activity had been solid at $120 million, but in general this is a slumbering market. Just 2.3 million square feet has changed hands during the past four quarters, or about 2.0% of the inventory. This implies a 50-year average property hold. The $1.38 billion in property changing hands since the start of 2008 is only slightly more than the total for 2007 alone.

Top Submarkets

One major sale last September 2011 is keeping Center City in the lead among the submarkets in square footage (924,072) and dollar value ($149 million) sold over the past 12 months. The Lower Merion Submarket leads in mean price at $289 psf and is second in dollar value sold, due to one large sale. The North Philadelphia Submarket comes in second in square footage sold.

Cap Rate Comparisons and Forecasts

Although there was no mean cap rate for the second quarter, the rolling 12 month cap rate fell 60 basis points to 7.8%. Reis predicts a gradual decline to 7.0% at year-end 2015. Quarterly mean cap rates tend to be higher in Philadelphia than the U.S. and Northeast Region averages, despite the fact that Philadelphia is generally considered a stable, low risk market. The low upside seems of greater interest to investors.