Tuesday, April 17, 2018

Office Availability Rates in Philadelphia Suburbs Among the Lowest in Northeastern U.S.

The vacancy rate for high-end office properties located along the stretch of the Pennsylvania Turnpike and 202 from Malvern to Exton rose to almost 25 percent in the wake of the Great Recession, with pharmaceutical firms including Pfizer and Endo Health Solutions downsizing their footprints and putting large blocks on space on the market for lease.

But these same office properties have seen average vacancy rates decline steadily since 2011, and are down below five percent to start the second quarter of 2018 – the lowest level in more than 15 years.

Another way to gauge the tightness of Malvern and Exton’s high-end office market is by comparing its availability rate (the percentage of office space listed as available for lease on CoStar), with availability rates in major office markets nearby. By this measure, Malvern / Exton is one of the tightest suburban office nodes throughout the entire Northeast region.

What explains the dramatic recovery in occupancies in these office properties located more than 25 miles from Philadelphia’s CBD?

For starters, recent infrastructure improvements have played a key role. In 2016, the Pennsylvania Department of Transportation completed a three-year project widening Route 202 to six lanes between Conestoga Road and Route 30. This project, combined with an earlier installation of a new interchange between the Pennsylvania Turnpike and Route 29, have made Malvern and Exton more accessible to commuters coming in from nearby areas such as King of Prussia, Downingtown and Phoenixville.

By locating in Malvern or Exton, office tenants can also remain close to highly-educated workers in and around the Upper Main Line, while paying lower office rents than tenants in competing suburban submarkets closer to Philadelphia.

For example, at the start of the second quarter, the average listed rent for 4 & 5 Star office space in Malvern and Exton was about $24.00 per square foot, 20 percent below listed 4 & 5 Star rents in King of Prussia and 30 percent below listed 4 & 5 Star rents in Conshohocken.

All of these selling points have helped coax firms in information technology, pharmaceuticals and finance to either move into Malvern or Exton, or to expand their existing offices within the area, in recent years.

Vacancy rates would likely need to tighten significantly in nearby competing suburban submarkets before Malvern and Exton’s year-over-year rent gains could sustain four- to five-percent growth for more than just a few quarters. However, by offering lower rents than most suburban office nodes in Philadelphia in recent years, Malvern and Exton office properties have clearly been standouts within the region for their ability to garner tenant interest and high occupancy rates.

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