Monday, January 14, 2019

Office Vacancy in Philadelphia Remains Flat, CBD Lease Rates Reach All-Time High

by Steve Lubetkin,
Lease rates for class A office space in Philadelphia’s central business district reached an all-time high of $33 per square foot per year in 2018, fueled largely by investors seeking to recoup the money they invested in fancier amenities.

Office sales volumes in the fourth quarter were nearly double the third quarter, with trophy buildings like Eight Tower Bridge in Conshohocken selling for $313 per square foot, and 1735 Market Street in the CBD going on sale.

Liberty Property Trust continues to unload its office portfolio, with several prominent sales in Malvern, west of the city, as part of a publicly announced rotation out of the office sector in favor of increased investment in industrial properties.
Tenant improvement allowances continued a rising trend since 2010, reaching $4.72 per square foot per year.

Despite the rising rents, vacancy rates remained stable at about 14.5%. Although class A vacancy rates declined from the third quarter. Occupancy gains from a new headquarters opened for food and venue services firm Aramark were offset by some large office relocation and downsizing activities, such as software company Optymyze’s move from Chester, PA into 1700 Market Street in Center City.

The pipeline of new office construction is mostly empty, except for build-to-suit properties that won’t contribute much to availability. Like Brandywine Realty Trust, which is renovating its office property at 500 N. Gulph Road in King of Prussia, landlords are likely to continue renovating existing assets to keep them competitive.

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