Philadelphia’s Office Market Stayed Strong in 2019

by John Jordan Globest.com
The office market in the Philadelphia region ended the year on a high note with lower availability and higher rents as compared to a year earlier.

In its fourth quarter Philadelphia fourth quarter 2019 market report, notes that Philadelphia’s regional overall availability declined 30 basis points from the third quarter to end 2019 at 16.9%. The Philadelphia Central Business District’s availability decreased 50 basis points to 11.7% by the end of the fourth quarter of 2019, which the report attributes to stronger activity in the East Market and Navy Yard submarkets.

Wilmington’s core availability (23.2%) declined 10 basis points from the third quarter. Suburban availability registered a 20-basis-point drop quarter-over-quarter to 19.7%, with notable contractions in South New Castle (down 620 basis points), Media/Newtown Square (down 600 basis points), Lansdale (down 550 basis points) and King of Prussia (down 210 basis points).

Asking rents in Philadelphia’s core contracted over the quarter, but were still higher from earlier in the year. The region’s overall asking rent increased less than 1.0% quarter over quarter to $28.62 per square foot, but was 1.5% higher than at the beginning of the year. Similarly, the average asking rent in the Philadelphia Central Business District decreased less than 1.0% quarter-over-quarter to $34.30 psf, but was 4.0% higher than in Q1 2019. Quarter-over-quarter, rents flattened in the West Market ($34.08 psf) and University City ($41.03 psf) and declined 1.5% in the East Market ($32.39 psf). The suburbs saw more quarterly rent gains, most notably in Conshohocken ($39.29 psf), Newtown ($31.39 psf) and Lansdale ($20.17 psf), Savills reports.
Regional leasing activity totaled 7.2 million square feet (msf) for 2019—2.2% less than in 2018. Class A properties accounted for 4.8 msf (66.7%) of the year’s transactions.

Philadelphia’s Central Business District recorded 2.6 msf of leasing activity, mostly concentrated in the West Market (1.6 msf) and East Market (0.6 msf) submarkets.

Notable leases executed during the fourth quarter of included M&T Bank’s regional headquarters relocation to 45,000 square feet at Radnor Financial Center (Radnor) from Villanova and Five Below Inc.’s 43,000-square-foot expansion at 701 Market St. (East Market), and Cohen Seglias’ relocation of 34,391 square feet to 1600 Market St. (West Market). In addition, co-working provider WeWork expanded its presence at 1100 Ludlow St. (East Market) by 25,183 square feet, despite uncertainty surrounding the co-working firm’s future finances.

Construction costs are expected to increase with the rising price of materials and labor, impacting the cost of tenant build outs and the market anticipates new projects breaking ground in 2020 with the expected finalization of Morgan, Lewis & Bockius’ lease at a proposed 331,000-square-foot office tower.

It is expected that in 2020 as tenants continue to seek amenity-rich locations and buildings, owners will focus on upgrades and renovations on their properties.
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