Monday, January 20, 2014

Tight market for city’s trophy towers

By Natalie Kostelni, Staff Writer for Philadelphia Business Journal
Center City’s trophy office market is experiencing the lowest vacancy ever and the highest rents ever.
This high-end office space comprised of six towers — Comcast Center, Cira Centre, One Liberty Place, Two Liberty Place, Mellon Bank Center and Three Logan Square — has a vacancy rate of 3.9 percent and average rents of $40.16 a square foot. That trend isn’t expected to continue.
“Trophy space is peaking and it’s going to be difficult for it to climb a whole lot higher,” 
What is expected to happen is more tenants leasing Class B space will flee to better space in the Class A market. Class C tenants will also likely seek better quality space, all of which will go toward improving the overall office market.
The dynamics at work in the Central Business District has meant the office market is finally shedding some of the doldrums it experienced during the recession and is finally returning to balance, Fisher said. The market, which totals 43 million square feet, ended last year with a 13.6 percent vacancy rate. That is down from year-end 2012 when the rate was 14.1 percent. In fact, the CBD has the lowest vacancy in the region with South Jersey at 16.9 percent, the suburbs at 17.9 percent and Wilmington at 19 percent.
While landlords have the upper hand in certain buildings where there isn’t a lot of available space, property owners don’t have total control of the market but deals are improving from a landlord’s perspective.
“Clearly, we’re headed back to a level playing field,” Fisher said.
About 2.3 million square feet of space was leased last year in Center City and about the same is expected this year. The vacancy rate is projected to slip below 13 percent. The median vacancy is typically 12.6 percent.
“We’re headed back to normal.” 

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