Q2 2012 Philadelphia, Pennsylvania Office Submarket Trends

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Q2 2012 Philadelphia, Pennsylvania Office Submarket Trends

One of the handfuls of extensive, transit-oriented CBDs in the United States, Center City has been the weakest among them. Much of its redevelopment in recent decades has been in residential, retail, and entertainment, not office-based activities. It is the Main Line suburbs west of the city that feature the highest office rents in the metro area, and the suburban markets near the intersection of I-76, I-276, and I-476 that have had the most office growth over the past decade.

CBD

  • The 39.3-million-square-foot Reis Center City submarket has a second quarter 2012 vacancy rate of 11.1%, third lowest among 15 submarkets, and an average asking rent of $26.63 psf, the third highest.
  • Following a strong first quarter, 131,000 square feet negative net absorption pushed the vacancy rate up 30 basis points in the second quarter. It is still down 100 from a year earlier. The average asking rent increased 0.3% and the average effective rent rose 0.2% to $21.32 psf during the quarter. The year-over-year gains are above average at 2.4% and 2.9%, respectively.
  • “The vacancy rate decreased from 11.6% in the first quarter to 11.1%,” according to Colliers. This source puts the average asking rent at $25.46 psf in the CBD.
  • “The pipeline of requirements indicates that companies are beginning to grow their offices and there is the opportunity for moderate absorption over the next two quarters,” according to Colliers. “However, any gain in occupancy in 2012 is likely to be offset by the ±800,000 square feet of GlaxoSmithKline space that will be coming back on the market in 2013.”
  • GlaxoSmithKline vacated 235,000 square feet at Three Franklin in the second quarter, according to Studley, Inc.
  • “The former Strawbridge & Clothier Building at 801 Market Street made headlines again this quarter by inking another large deal,” according to Cushman & Wakefield. “Last year, the Philadelphia Media Network inked a 125,000-square-foot lease at the building. During the second quarter of 2012, the Philadelphia Parking Authority signed a 124,662-square-foot lease that will relocate them from 3001 Market Street.”
  • Ballard Spahr renewed for 202,000 square feet of Class A space at Bank of New York/Mellon Center, according to Cushman & Wakefield.
  • In the 4.0-million-square-foot Reis West Philadelphia submarket the vacancy rate is 7.9%, lowest among the submarkets, and the average asking rent is $30.02 psf, second highest.
  • The vacancy rate decreased 60 basis points during the second quarter on 24,000 square feet of net absorption. The average asking rent was unchanged and the average effective rent rose 0.1% to $26.38 psf. Rents are up 1.3% and 1.9%, asking and effective, from one year earlier.
  • The 205,000-square-foot Five Crescent Drive and the 89,700-square-foot The Wistar Institute remain under construction, with the former due to complete construction in January.
  • “Brandywine Realty Trust has relaunched an extensive marketing campaign of its Cira Centre South complex at 30th Street in Philadelphia as it attempts to seize on conditions that may finally get the long-awaited project under way,” the Philadelphia Business Journal reported. The first Cira Centre building was a success, but efforts to lure BlackRock to a second building failed during the recession; the entire project qualifies for extensive tax breaks. The marketing effort covers the entire Northeast Corridor. Brandywine cited a tightening market for trophy space despite abundant space overall.

Pennsylvania Suburbs

  • The 5.9-million-square-foot Reis Bucks County submarket has a second quarter vacancy rate of 23.1%, second highest among the submarkets, and an average asking rent of $22.89 psf.
  • The vacancy rate increased 40 basis points in the second quarter and is up 180 from a year earlier. The average asking rent increased a penny with the effective average rent unchanged at $18.56 psf. The year-over-year gain is 0.5% by both measures.
  • The 2.9-million-square-foot Reis North Montgomery County submarket has a 19.4% vacancy rate, and an average asking rent of $21.00 psf.
  • The vacancy rate increased 60 basis points during the second quarter, but remains down 290 from a year earlier. Both the average asking rent and the average effective rent were essentially unchanged during the quarter, with the latter at $16.87 psf. The year-over-year gains are 1.8% and 1.9%, respectively.
  • For the 5.9-million-square-foot Delaware County submarket, Reis records a 9.6% vacancy rate, second lowest among the submarkets, and an average asking rent of $25.20 psf.
  • The vacancy rate decreased 70 basis points during the second quarter, and is down 140 from a year earlier. The average asking rent was down 0.7% during the quarter, while the average effective rent fell 0.6% to $22.08 psf. Rents were up 1.0% and 1.4%, respectively, from a year earlier.
  • The 5.2-million-square-foot Reis Lower Merion submarket has a vacancy rate of 15.5%, and an average asking rent of $31.81 psf, the most expensive submarket metrowide. This submarket includes the exclusive close-in “main line” suburbs.
  • The vacancy rate was unchanged during the second quarter, as both the average asking rent and the average effective rent increased 0.3%, the latter to $24.94 psf. Rents are up 0.5% and 0.6%, respectively, from a year earlier, with the vacancy rate up 20 basis points.
  • The 250,000-square-foot Seven Tower Bridge property in Conshohocken is under construction, and accounts for most of the new supply expected over the next five years in this submarket. The 141,000-square-foot Bryn Mawr Medical Arts Pavilion, a medical office building, is scheduled to complete construction in November.
  • In the 5.9-million-square-foot Blue Bell/Plymouth Meeting submarket, Reis reports a second quarter vacancy rate at 20.0%, and an average asking rent of $24.72 psf. The average effective rent is $19.38 psf.
  • The vacancy rate increased 10 basis points in the second quarter but is up 30 from a year earlier. The asking and effective rent averages each rose 0.2% during the quarter. The year-over-year gains are 0.6% and 0.9%, respectively.
  • The 5.1-million-square-foot Exton/Malvern/North Chester submarket has a 19.0% vacancy rate, and an average asking rent of $22.54 psf, according to Reis.
  • The vacancy rate increased 60 basis points during the second quarter, and is up 240 basis points from a year earlier despite no new supply. Rents increased 0.1% by both measures in the second quarter, with the effective average to $18.57 psf. Rents are essentially flat here year-over-year.
  • The 320,000-square-foot Endo Pharmaceutical Headquarters in Malvern and the 130,000-square-foot West Pharmaceuticals Headquarters are each expected to complete construction here by the end of 2012.
  • In the 6.0-million square-foot King of Prussia submarket, the vacancy rate is 15.9%, and the average asking rent is $22.89 psf, per Reis.
  • The vacancy rate rose 60 basis points in the second quarter, as both the asking average and the effective average increased 0.6%, the latter to $19.58 psf. The vacancy rate is up 20 basis points year-over-year, with asking and effective rent increases of 1.8% and 2.2%.
  • For 58.8 million square feet in Suburban Philadelphia on the Pennsylvania side, Cushman & Wakefield reports a vacancy rate of 16.4%, and an overall weighted average gross rental rate of $23.77 psf.
  • “The year-to-date direct absorption rate dipped further into the negative this quarter at 354,001 square feet,” according to this source. “The King of Prussia/Valley Forge submarket contributed most to the drop in absorption with some new vacancies added to the market this quarter at the Great Valley Corporate Center in Malvern, PA, the Chesterbook Corporate Center in Wayne, PA, and the Maschellmac Office Complex in King of Prussia.”
  • There were several smallish leases according to this source. “Financial Software leased 31,093 square feet at 100 Tournament Drive in Horsham, PA, FT Services took 15,044 square feet at 1000 Continental Drive, and Insight Pharmaceuticals inked a deal for 14,473 square feet at 900 Northbrook Drive in Trevose, PA.”
  • The only large lease was for Flex space, as “Dow Chemical signed a long-term flex lease for 800,000 square feet at Pfizer’s Collegeville campus within the 422 Corridor. Pfizer vacated this portion of its campus back in 2010 which has remained available for lease since that time.”
  • “West Company and Endo Pharmaceutical’s buildings in Exton and Malvern will be completed in the fourth quarter,” according to Colliers. “There are additional renovation projects underway and planned such as the Arborcrest in Blue Bell and the Davis Companies/MIM-Hayden’s planned redevelopment of 530 and 580 E. Swedesford Road in Wayne.”

Southern New Jersey

  • The second quarter vacancy rate in the 5.9-million-square-foot Reis Camden/Gloucester submarket is 19.2%, while the average asking rent is $19.31 psf, the lowest metrowide.
  • The vacancy rate increased 30 basis points in the second quarter despite 79,000 square feet of net absorption, and is up 120 from a year earlier. The average asking rent increased 0.2% during the quarter, with the average effective rent up 0.1 to $17.31 psf. The year-over-year increases were 1.0% and 1.1%, respectively.
  • The 120,000-square-foot Town Place at Garden State in Cherry Hill completed construction in May according to Reis.
  • The 48,000-square-foot Tower Commons building 5 to 9, an office condominium project, is expected to complete construction in Sewell, Gloucester County in September 2012. Two medical office buildings will add 212,000 square feet in 2013: the 54,000-square-foot Lourdes Cardiology Heart Failure Center in Cherry Hill and the 158,300-square-foot Cooper Cancer Institute in Camden.
  • For the 8.5-million-square-foot Burlington submarket, Reis reports a vacancy rate of 18.4%, and an average asking rent of $20.94 psf.
  • The vacancy rate increased 60 basis points during the second quarter, and is up 110 from a year earlier. Both the average asking rent and the average effective rent fell 0.3% during the quarter, the latter to $16.60 psf. The year-over-year gains are just 0.1% and 0.5%, respectively.
  • “Following two years with significant occupancy loss, Southern New Jersey began to rebound during the first two quarters,” Colliers reported. “Companies such as Title Resource Group and Comcast expanded within the market and other major employers such as PHH were beginning to hire more workers. Burlington Coat Factory accepted tax incentives to remain in New Jersey and will be building a new 180,000-square-foot headquarters building in Florence, Burlington County for its office personnel.”
  • This source reports a vacancy rate of 15.2% and an average asking rent of $20.07 psf for Southern New Jersey.
  • Cushman & Wakefield reports a vacancy rate of 16.4% in Southern New Jersey. The overall weighted average all classes rental rate is given as $20.77 psf.