Slew of big leases signed in suburbs

by Natalie Kostelni
"While it’s a tad too soon to see the immediate effect of a scarcity of big blocks, it will eventually mean rents going up and large tenants scrambling to lock into space. A handful of companies are scouring the suburban office market for large blocks of office space.

For example, Certainteed Corp. and the Children’s Hospital of Philadelphia are each out roaming around for 200,000 square feet, Universal Health Services is expected to soon begin a search for a 150,000-square-foot headquarters, and Travelers Insurance is exploring relocating 60,000 square feet of back-office operations to King of Prussia, among others.

“It’s the tail-end of a tenant’s market,” said a broker with CB. “I think the market will begin to tighten by the end of the year.”

That is when he anticipates rents to start inching up. Already, concessions, from free rent to extra tenant improvement dollars, have started to be eliminated from deals. While new construction is likely way off, according to Dagit, the dwindling supply of large blocks may spur the redevelopment of some tired, old buildings.

Recent transactions sewn up include:

• Brokerage Concepts took roughly 60,000 square feet off Union Meeting Road at Arborcrest Corporate Campus in Blue Bell;

• Universal Health grabbed a 40,000-square-foot sublease off former First Niagara space at 170 Warner Road in King of Prussia;

• PJM Interconnection wrapped up a 15-year lease and will expand into roughly 105,861 square feet at 2750 Monroe Blvd. in Valley Forge, where Quest Diagnostics had been located;

• Quest Diagnostics relocated into 136,000 square feet at 1001 Adams Ave. in Valley Forge;

• Nuclear Regulatory Commission signed onto 79,764 square feet at 2100 Renaissance Blvd. in King of Prussia; and

• First Niagara took out a 10-year lease on 63,000 square feet at 401 Plymouth Road in Plymouth Meeting for a regional headquarters.

“There aren’t many large blocks of space and those that are available are all being absorbed,” said an office broker. “The buildings that are doing well are the newer buildings or buildings in which a lot of capital has been spent. We’re definitely seeing a flight to quality. The properties that are having a tough time are commodity buildings — those buildings built in the early- to mid-1980s that landlords haven’t put money back into.”

Dull buildings that have old lobbies, bathrooms and no distinguishing factors have suffered and tenants who land in them are basing it just on cost. Other tenants have seized on a down market in which rents on buildings that are newer or have undergone extensive renovations are lower and they can afford to be in a nicer office.

“People want to be in a nicer building and are excited to be in there,” he said. “Do you want to drive the 3-year-old GMC off a lease or a new Lexus?”

In the case of First Niagra, the bank was seeking to consolidate five offices into one. It launched its search last fall and looked at spaces convenient to its employees working from outposts including Towamencin, Harleysville, Maple Glen, Broomall and Blue Bell, said Bob Kane, regional president at First Niagara. It zeroed in on Plymouth Meeting because of its access to major arteries and ability to get exterior signage on the building.

“It’s a pretty big deal for us,” Kane said. “It shows commitment.”

The bank will start out with 180 people in the space and seek to add 65 more employees.

While the spate of deals are an encouraging sign for the suburban office market, it is climbing out of a 19.1 percent vacancy rate, according to year-end data."