The second quarter of 2017 saw vacancy rates in the city’s Central Business District (CBD) increase while asking rental rates in the suburbs climbed to their highest levels since 2009, according to Cushman & Wakefield. The commercial real estate services firm’s Philadelphia research team released its second-quarter 2017 Office Marketbeat reports for the region.

Philadelphia CBD Market

“Although the overall vacancy rate remained flat year-over-year at 10.5 percent, it increased by 20 basis points since the first quarter of this year,” said Jared Jacobs, Cushman & Wakefield Research Manager. “Asking rents in the Philadelphia CBD continue to increase quarterly, climbing to $30.07 per square foot for all classes in the second quarter.”

No new construction has been delivered to date in 2017, but the renovation to the former Family Court building at 1100 Ludlow Street was completed during the second quarter. Although multiple tenants preleased space in the building, including the Marketplace Design Center and Bohlin Cywinski Jackson, over 100,000 square feet of multi-tenant office space remains available for lease. Asking rates of $35.00 per square foot at the property contributed to the overall rise in asking rents for the East of Broad submarket, which increased by 3.9 percent since last quarter.

Second-quarter leasing in the market was strong overall, particularly in the West of Broad submarket. Jazz Pharmaceuticals expanded its footprint in the downtown market by leasing 46,000 square feet at One Commerce Square, a 16,000-square-foot increase from the spaces they currently occupy at 1818 Market Street and Two Commerce Square. Other notable leases signed this quarter included Margolis Edelstein renewing for 40,000 square feet at 601 Walnut Street, Hussian School of Art, Inc. leasing 32,771 square feet at 1500 Spring Garden and Magee Rehabilitation Hospital taking nearly 20,000 square feet at 1617 John F. Kennedy Boulevard.

Asking rental rates in the Philadelphia CBD are projected to increase further with the third-quarter completion of the redeveloped office component of Franklin Tower at 200 North 16^th Street. The project will deliver nearly 215,000 square feet of office space for lease, with quoted asking rents northward of $31.00 per square foot.

Philadelphia Suburban Market

According to Jacobs, overall vacancy in the suburban Philadelphia office market declined to 11.7 percent in the second quarter of 2017, a drop of 190 basis points year-over-year, and asking rental rates for Class A space continued to climb.

“The current asking rate of $26.47 per square foot is the highest since 2009,” he noted. “Asking rents are expected to increase by 1.8 percent by year-end, with positive growth projected into 2018 and 2019.”

Declining vacancy rates and increasing tenant demand for Class A product have driven suburban asking rates northward over the past six to twelve months. Vacancy is projected to decline over the next six months, with continued tenant demand and no new speculative construction expected to deliver by year-end 2017.

Leasing activity for 2017 is up by 28.0 percent year-over year with 1.8 million square feet of new activity. The largest lease of the second quarter was signed by Bayview Loan Servicing for 72,500 square feet at 507 Prudential Road in Horsham. Additional leases inked throughout the suburban market included RSM taking 42,450 square feet at 518 Township Line Road in Plymouth Meeting, CBRE leasing 28,804 square feet at 555 East Lancaster Avenue in Radnor, and Tandigm Health renewing and expanding for a total of 25,840 square feet at 300 Conshohocken State Road in Conshohocken.

Renovation projects continue in the suburbs while new construction activity remains limited. This is most notable in the Blue Bell/Plymouth Meeting/Fort Washington submarket, where the 203,049-square-foot building at 785 Arbor Way is being upgraded. Cotiviti has preleased 86,621 square feet in the building and will occupy when the renovation is completed in early 2018.

About Cushman & Wakefield

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