Jared Jacobs
Cushman & Wakefield Releases First Quarter Research Findings
Robust demand for Class A space drove nearly 1.5 million square feet of overall leasing activity and net absorption of 403,971 square feet and generated several large investment sales in the CBD and suburban office markets during the first quarter of 2017, according to Cushman & Wakefield. The commercial real estate services firm’s Philadelphia research team released its first-quarter 2017 Office Marketbeat reports for the region.
Philadelphia CBD Market
“The overall vacancy rate increased 50 basis points to 10.3 percent year-over-year during the first three months of this year,” said Jared Jacobs, Cushman & Wakefield Research Manager. “The trend likely will continue throughout 2017 as the current consolidation trend among big users continues with multiple renovation projects adding space. The renovations of One Franklin Tower and the former Family Court Building at 34 South 11th St. are expected to add 300,000 square feet of redeveloped space to the market.”
The Philadelphia CBD experienced positive absorption of 61,377 square feet, and overall asking rents rose 5.2 percent year-to-year to $29.81 per square foot but were down slightly from the fourth quarter of last year’s historical high of $30.08. Class A office buildings experienced the largest rental rate growth, 7.7 percent, to $31.65. Investors executed two significant investment sales during Q1: Rubenstein purchased the 973,610-square-foot Wanamaker Building from the TIER REIT for $111.1 million. TIER REIT also sold 1601 Cherry St, 561,361 square feet, to Barings Real Estate Advisers LLC and MRP Realty for $95 million.
Leasing was strong in the quarter with 461,858 square feet of new leasing activity, a year-over-year increase of 1.1 percent, with multiple deals signed at the FMC Tower at Cira Centre South. Spark Therapeutics signed the largest lease for 74,479 square feet, and Brandywine Realty Trust opted to move its headquarters from the suburbs to 46,226 square feet in the Philadelphia CBD West of Broad submarket. There were multiple renewals and consolidations including PNC Bank’s lease for 230,000 square feet at 1600 Market St., downsizing from 350,000 square feet in the building. Elsevier Inc. renewed for 80,713 square feet at 1600 JFK Boulevard, consolidating from approximately 130,000 square feet.
Philadelphia Suburban Market
Overall vacancy in the Philadelphia suburbs continued to decline during Q4, ending the quarter at 11.3 percent, a drop of 50 basis points from the end of 2016, according to Jacobs, who added, “The vacancy rate represents a 370 basis-point decline since the first quarter of 2016 and is the lowest since 2001. We expect to see tenant demand increase throughout the year.”
While rental rates for all classes declined slightly, down 0.3% to $24.63 per square foot over the past year, overall asking rates for Class A space increased by 1.6% to $26.27. The 27.3 percent increase in overall net absorption of 369,968 square feet helped the suburban Philadelphia start 2017 on a strong note.
The Blue Bell/Plymouth Meeting/Fort Washington submarket experienced the most new activity in the first quarter. In Blue Bell, Cotiviti Corp. signed the largest lease of the quarter, taking 86,621 square feet at 785 Arbor Way. Previously occupied by Merck, the building is under renovation and is set to deliver in early 2018. Additional leases in the submarket included AON Insurance Services, Inc. taking 76,475 square feet at 1100 Virginia Drive in Fort Washington and Company Voice leasing 25,096 square feet at 2060 Detwiler Road in Harleysville.
Other notable Q1 17 leases in the submarket included:
- Telerx Marketing Inc. took 44,023 square feet at 410 Horsham Road in Horsham.
- Endo Pharmaceuticals, Inc. renewed for 40,472 square feet at 102 Rock Road, also in Horsham.
- Envestnet, Inc. renewed and expanded for 37,088 square feet at 1000 Chesterbrook Boulevard in Berwyn.
- PQ Corp. renewed for 33,000 square feet at 300 Lindenwood Drive in Malvern.
- Ricoh USA, Inc. extended its lease at 1265 Drummers Lane in Wayne for 25,628 square feet.
Several notable investment sales transpired in southern Bucks County during the first quarter. Leser Realty paid $37.5 million to O’Neill Properties for the 214,679-square-foot 3800 Horizon Boulevard. Red River Asset Management sold 1414 Radcliffe St., 183,000 square feet, to Hudson Equities for $20 million. In the King of Prussia/Valley Forge submarket, Kairos & Artemis Real Estate sold 2200 Renaissance Boulevard, 184,118 square feet, to Zamir Equities for $30.2 million.
“Coming off two consecutive years of strong investment sales with 136 sales totaling 9.7 million square feet, we are projecting activity to remain robust in the near-term,” Jacobs said. “Rental rates are also expected to increase, particularly Class A rates, which are at the highest point since 2009.”
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