Friday, November 11, 2011

New to Market, space at Two Commerce

by Natalie Kostelni
Full story:

"For the first time since Two Commerce Square was constructed in 1992, space is available on the upper portion of the 41-story office tower at 2001 Market St. —and nearly 100,000 square feet of it.

Ernst & Young, which is one of the tenants who moved in when the building was built for Conrail, signed on to stay in the office complex but in smaller space, on lower floors and in adjacent sister tower, One Commerce Square. The accounting firm struck a 12-year deal to lease 75,000 square feet on the sixth and seventh floor as well as a portion of the eighth.

This is a reduction in the space the firm had been in when it occupied floors 28, 35, 36, 37, 39 and 40 and totaling 96,000 square feet. Though it cut its space needs, the firm slightly increased its head count of roughly more than 810 employees by making its new space more efficient.

“The space they were in was 20 years old and the way they work now, it’s dated,” said Morgan Murray, senior managing director with Thomas Realty Partners, who helped arrange the Ernst & Young renewal.

Companies are starting to move from a cubical culture to one in which employees work side-by-side on long tables and don’t need as much space because of technology and telecommuting and more room dedicated to collaborative space. Where each employee used to get 250 square feet in space planning, now it’s 140 square feet.

“It’s dramatically different,” said Joe McManus, senior vice president at Thomas Realty. “These spaces are in need of a major overhaul and tenants are recognizing that.”

Chris Bruner, managing partner of Ernst & Young’s Philadelphia office, said that the firm wanted to stay on that side of the city because it’s close to 30th Street Station and convenient to the homes of many employees. It was important, however, to have new space designed to be more efficient.

Though floor 28 isn’t in the high-rise portion of Two Commerce, the remainder of the floors Ernst & Young had filled are. Their availability for the first time will likely be welcomed by the office market.

“It brings a little competition to the top of the trophy market that hasn’t been there. Even though the market hasn’t been all that active, all of the large blocks of trophy space is all but gone. There’s a sprinkling of sublets bit large blocks aren’t available.”

For example, space Unisys Corp. vacated at Two Liberty Place has been backfilled by Buchanan Ingersoll, a law firm, and Studley Inc. and a portion of the space Sunoco Inc. emptied out of at Mellon Bank Center has been subleased. Three Logan has made a dent in its vacancy with Janney Montgomery Scott taking 147,000 square feet.

Class A space in the Central Business District experienced a relatively tight 8.1 percent vacancy rate in the third quarter of 2009 only to have that swell to 15.1 percent by the third quarter last year. It has since edged down to 9.4 percent.

For Commerce Square, the floors from 15th down compete with the entire office market. The upper floors get attention from tenants looking for trophy space. McManus thinks the space in Two Commerce will get filled by several small tenants rather than one or two large firms.

Ernst & Young will move into its new space at the end of the year.

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