Philly's Suburban Office Market Outperformed Downtown In Q3

by Matthew Rothstein, Bisnow Philadelphia
Philadelphia's downtown and suburban office markets trended in opposite directions in the third quarter. Asking rents and net absorption declined both quarterly and year-over-year in Q3, while vacancies rose in the central business district. The current vacancy at 10.9 to 13.1% estimates vacancy among downtown office buildings.

 The negative trends are due to consolidations from major players like PNC, Wells Fargo, Verizon and IBX, which the small number of entrants has failed to offset. The combination of large blocks of availability in existing buildings with the incoming delivery of 700K SF of new office space has both slowed leasing and decreased rents as landlords struggle to differentiate themselves for tenants. The CBD's vacancy rate is at its highest point since 2014. “The number of tenants relocating from the suburbs to downtown has dwindled. Also, a decline in leasing activity by co-working firms and Comcast has failed to move space off of the market so far this year.”

The slowdown could be a natural ebb ahead of the delivery of the Comcast Technology Center, which will coincide with other office buildings, 2,600 apartments and 1M SF of retail opening in 2018. Meanwhile, a lack of new construction is helping to drive pricing upward in suburban markets like Conshohocken and Radnor, while the relative value of King of Prussia and its emerging live-work-play scene is increasing leasing activity there. Overall there are estimates 314K SF of positive net absorption in the suburbs so far this year, while other estimates 716K SF. With certain office complexes renovating and repositioning to keep up with modern trends without competition from new construction, the suburban market looks poised to keep its momentum into 2018.

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