Rents Rising, Availability Tightening in Philadelphia Office Market

by Steve Lubetkin, Globest.com
Asking rents for Center City Philadelphia office space have risen nearly four percent year over year, while availabilities have declined by 2.2 percent. Overall leasing grew to 3.3 million square feet in the quarter, up 13 percent from the prior period, and class A trailing volume of 2.2 million square feet was up 40.2 percent for the quarter and a solid eight percent for the year so far.

“Everybody here is pretty excited about the direction the city is going in. There have just been a number of firms that have moved to the city, and the construction that’s happening. The downtown atmosphere is completely changed.”

Availability of suburban class A space dropped to 16.7 percent from 17.9 percent in the quarter. In Center City, the class A availability dropped to 11.8 percent. Both Center City and suburban areas recorded their lowest class A availability since the end of 2008, and that flight to quality office space is leading to the rising rates.

“The most significant thing you are seeing is the breakdown in pricing among buildings, where trophy class buildings have seen some significant price increases, relative to the lower end of the class A market and the class B market, which has largely been flat for the last decade,” says Garberson.

The redevelopment of the Gallery retail mall, and the nearby Market East development nearby, are moving rents in the East Market area higher. Once the Marketplace Design Center announced its move to the new Market East project in The Annex Building, other properties in the area being redeveloped have increased their rents, he says.

“There’s a lot of confidence in that part of the city among landlords right now,” he says.

The redeveloped Navy Yard in South Philadelphia got a boost last week with funding announced to study extending the Broad Street subway line to the complex. Garberson thinks the project will need more mass transit if it is to continue to grow. Earlier this year, Axalta announced a 175,000 square-foot R&D center being built with Liberty Property Trust.

“If they continue with their plans, and they’re going to include residential at the Navy Yard, they’re going to need it. It’s a very mass transit-based downtown area, so they need it if they want to compete with Center City or West Philly.”

Traffic has started to become an issue at the Navy Yard, whose weekday population has swelled to about 10,000 and could grow by another 5,000.

In University City, Garberson says, “I think you see a majority of the construction happening there,” noting that the former University City High School has been demolished and the five acre site is being redeveloped by Drexel University City Development, a joint venture between Drexel University and Wexford Science & Technology.
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