In 2013, the Center City Philadelphia office market benefited from the transformation underway downtown and is poised to gain momentum through 2014 and beyond, information presented at Newmark Grubb Knight Frank’s (NGKF) 19th annual real estate forecast event revealed. The CBD vacancy rate ended the fourth quarter at 13.6%, approximately 300 basis points below the Philadelphia metro office market and 50 basis points lower than one year ago. Over the next 12 months, overall office vacancy in the CBD is projected to drop another 50 basis points, ending 2014 below 13%. According to NGKF’s proprietary research, this tracks the national CBD market both in direction and magnitude.
“Center City Philadelphia, like many downtowns across the U.S., is benefitting from industry diversification, improving amenities and an expanding live-work population,” said Wayne Fisher, executive managing director. “Consistent with our forecast last year, 2013 brought positive net absorption and continuing improvement of top-market rents due to a historic low vacancy rate among trophy assets.
He added, “After the third four-year down cycle since 1985, we are beginning to move back toward a more balanced market. For Philadelphia’s CBD, we project another year of moderate but consistent growth, with opportunities for tenants to upgrade from Class B to Class A properties. In addition, rents should continue to rise, more likely across all asset classes.”
During 2013, new market entrants and expansions in the Philadelphia CBD counterbalanced several contractions, resulting in total absorption of approximately 196,000 square feet for the year. Mirroring the national office market, a trend toward more efficient space utilization and greater office density has tempered the pace of rebound, but NGKF research points out that the barriers to entry and demographic trends bode well for the CBD office market moving forward.
“What we have seen and will continue to see is the remarkable transformation of Center City,” said Sid Smith, executive managing director. “Bullish demographic trends continue to fuel the residential and retail renaissance, setting the stage for the downtown office market - tenants and landlords alike - to reap the benefits.”
Guest speaker Paul Levy, chief executive officer of Center City District, echoed this optimism when he shared findings from his report, Downtown Rebirth, which examined data from the nation’s 150 largest cities and revealed a “dramatic and sustained” increase in residents living in and adjacent to urban job centers.
“Transit-oriented, walkable and mixed-use business centers held up far better in the recent recession than single-use, auto-accessible employment centers,” Mr. Levy said. “Center City’s diversified live-work environment has become a major competitive advantage.”
The CBD’s positive momentum is also reflected in the investment market. With apartment vacancies at approximately 5%, NGKF expects the multi-family sector to remain especially popular with investors.
“While multi-family continues to be the hottest investment product, there should be continued solid sales volume in all CBD asset types,” said Dave Dolan, senior managing director. “However, expect cap rates to continue to vary widely based on quality of product and credit of tenancy.”
About Newmark Grubb Knight Frank
Newmark Grubb Knight Frank (NGKF) is one of the world’s leading commercial real estate advisory firms. Together with its affiliates and London-based partner Knight Frank, NGKF employs more than 12,000 professionals, operating from more than 320 offices in established and emerging property markets on five continents.
With roots dating back to 1929, NGKF’s strong foundation makes it one of the most trusted names in commercial real estate. Its integrated services platform includes leasing advisory, global corporate services, investment sales and capital markets, consulting, program and project management, property and facilities management, and valuation services. A major force in the real estate marketplace, NGKF serves the local and global property requirements of tenants, landlords, investors and developers worldwide. For further information, visit www.ngkf.com.
NGKF is a part of BGC Partners, Inc. (NASDAQ: BGCP), a leading global brokerage company primarily servicing the wholesale financial and real estate markets. For further information, visit www.bgcpartners.com.