Philadelphia Office Market
Large discrepancies in performance between the city’s trophy and non-trophy assets continued into the new year. At the end of the first quarter of 2024, trophy offices had a 16.8% vacancy rate, while standard Class A and Class B buildings had a 22.7% and 22.9% rate, respectively. The delivery of 3025 JFK Boulevard was Philadelphia’s latest addition to its trophy inventory. Its completion added over 170,000 square feet to available inventory. This, combined with its top-of-market asking rates, caused Greater Philadelphia’s overall asking rate to increase by $0.22/SF quarter-over-quarter to $31.85/SF. Leasing activity in Greater Philadelphia reached 1.4M square feet in the initial quarter of 2024. Since 2020, the average yearly leasing volume has been around 5.4M square feet. Although early, Greater Philadelphia is on pace to reach this annual average.
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The lease-up of Class A space coupled with normalizing demand has put some downward pressure on asking rates. The $11.32/SF asking rate at the end of the first quarter marked a decline of 1.2% year-over-year and 2.1% from the prior quarter. For the second consecutive quarter, leasing volumes remained at 4.8M square feet. After bottoming at 2.1M square feet in the third quarter of 2023, leasing activity has recovered to pre-2020 levels. In 2019, the average quarterly leasing volume was 4.1M square feet, further suggesting the market is returning to a normalized state of demand. Construction starts trended upward for the fourth-consecutive quarter, reaching 2.8M square feet. However, this is 35% less than the 2020-2022 average.
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