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Newmark Grubb Knight Frank (NGKF), one of the world’s leading commercial real estate advisory firms, today presented its 2013 commercial real estate forecast for the Greater Suburban Philadelphia market at its annual forecast breakfast, which featured keynote speaker James Kuhn, president of NGKF, as well as a number of NGKF suburban market specialists. Based on the company’s proprietary research, suburban market fundamentals should improve moderately over the next 12 months driven by demand growth in Class A office assets within key submarkets.
“Organic growth by expansions of existing tenants is expected to drive the bulk of office space demand in Philadelphia’s suburban markets during 2013,” said Bob Clements, executive vice president and managing director of NGKF’s Philadelphia region. “In spite of uncertainty coming out of Washington, D.C., we expect continued occupancy growth in the region given its relatively minimal exposure to the potential sequestration cuts.”
Vacancy rates in every market fell during 2012 while slow economic growth became the new normal. Construction has been limited, which bodes well for landlords who have been attempting to backfill vacancies that resulted from the last recession. Specifically, the suburban office markets are tightening up in the submarkets of Bala Cynwyd, Conshohocken and Radnor, which should have a stabilizing effect on adjacent office areas such as King of Prussia, Wayne and Plymouth Meeting.
“Class A landlords, specifically in and around Radnor and Conshohocken, will enjoy rent growth driven from consistent demand for high-end space in key geographic submarkets,” said Jeff Mack, executive managing director. “And submarkets abutting Radnor and Conshohocken also will benefit as these hot spots currently have very little supply to satisfy many of the requirements in the market. Expect King of Prussia to experience occupancy growth as a result.”
Reid Blynn, executive managing director, added, “The market continues to show improvement with concessions diminishing in core markets like Radnor. Outside of core markets, tenants continue to win concessions.”
Southern New Jersey is one market that is more exposed to the pending sequestration. “Federal cuts may dampen demand growth for Southern New Jersey in the coming year,” posited Anne Klein, senior managing director in the Marlton, N.J., office. “We already know of some tenancy loss due to a company tied to federal contracts. Regardless, the amount to which these cuts will temper positive absorption in our market is expected to be minimal. Overall, we expect renewal activity to remain strong, rents to stabilize and lease terms to lengthen more toward the seven-year mark, up from the historic average of five years.”
Wills Elliman, senior managing director in Wilmington, Del., explained that another year of healthy tenancy growth is expected in New Castle County as financial services firms continue to position themselves for expansion in the coming year.
“From a job perspective, 2011 was marked with uncertainty as several layoffs or potential right-sizing situations were in the works,” he said. “This trend reversed in 2012 when companies such as J.P. Morgan, Capital One, Bank of America and Citi announced significant hiring increases for the greater Wilmington area. These job gains will translate directly into office space demand, and rents should feel some upward pressure by year end as vacancy dips further below its 10-year median average of 17.1%.”
The pace of investment sales activity in the region also is expected to pick up. “Sales volume will continue to grow, specifically from the special services and lender sales transactions,” noted Mike Margolis, senior managing director. “Maturing loans also will drive sales as some owners can gain net proceeds from dispositions, but would require another equity infusion if they were to seek refinancing.”
For more information about NGKF’s outlook for the Suburban Philadelphia commercial real estate market, contact Mira Matic at 973-461-9005, mira@miramaticpr.com.
About Newmark Grubb Knight Frank
Newmark Grubb Knight Frank is one of the world’s leading commercial real estate advisory firms. Together with its affiliates and London-based partner Knight Frank, Newmark Grubb Knight Frank employs more than 11,000 professionals, operating from more than 340 offices in established and emerging property markets on five continents.
Newmark Grubb Knight Frank’s 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, Newmark Grubb Knight Frank serves the local and global property requirements of tenants, landlords, investors and developers worldwide. For further information, visit www.newmarkkf.com.
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