Newmark Grubb Knight Frank (NGKF) today shared its outlook for the suburban Philadelphia office market at the company’s annual Philadelphia Metro Suburban Forecast. The event, now in its 13th year, was held at the Philadelphia Country Club in Conshohocken, Penn. Executive Managing Directors Jeff Mack and Reid Blynn discussed current market conditions, which reflect slow recovery in the leasing markets following peak vacancy in 2010, but indicated that activity over the past year points to a broader recovery.
“Except for a few submarkets, there are a range of opportunities available to absorb the uptick in demand we expect in 2014,” said Mr. Blynn. “We predict growth-stage companies to be most active in the market as more and more venture capital moves upstream to revenue-generating enterprises, funding overall organic growth in the marketplace.”
While NGKF expects strengthening in both Class A and B office fundamentals, Mr. Mack explained that recovery in the suburban office market over the next 12 months will continue to be in the Class B sector. “We expect some speculative office development, supported by an element of pre-leasing, to kick off in the Bala Cynwyd, Radnor/Conshohocken, Wayne or Plymouth Meeting submarkets, where inventories of Class A space are in short supply,” he said.
Still, there have been bumps on the road to recovery. In Wilmington, Del., for example, “it’s a case of déjà vu,” said Wills Elliman, senior managing director. “AstraZeneca is disposing of 545,000 square feet in 2013 and 2014, adding vacancy to a market that has not fully recovered from 2007 and 2008, when Bank of America returned 600,000 square feet through disposition of unused assets.”
Mr. Elliman pointed to positive news, as well - CSC recently committed to a 175,000-square-foot built-to-suit project at The Commons at Little Falls. He and partner Neal Dangello represented Trefoil Properties, LP in the transaction.
2014 Forecast Summary, Leasing Markets
A return to normalcy was echoed in the discussion of sales activity in the region, where investment sales totaled $797 million in 2013. Throughout the country, 70% of distressed assets left over from the financial crisis of 2007-2009 have worked through capital issues, setting the stage for improved performance in the coming year.
“2013 marks the year when sales activity returned to normal market levels,” said Mike Margolis, senior managing director, NGKF Capital Markets. “As REITs orient capital toward CBD core-office or logistics-grade industrial assets, the appetite among private investors and funds for stabilized or value-add properties in the suburbs accounts for the demand side of suburban office sales, which is still well below historical levels.”
Anne Klein, senior managing director in Southern New Jersey, stated, “We’ll continue to see a shift in ownership types. REITs have been net sellers over the past few years, a trend we expect to persist and create more competition for tenants in the market. In spite of this, overall pricing should continue to improve. The supply of large blocks is shrinking, putting upward pressure on rents.”
The event also included a panel discussion on workplace strategies, featuring Sue Thompson, facilities manager, Koch Business Solutions; Jerry O’Brien, vice president of real estate, Comcast; Chris Heck, manager of corporate real estate and strategic planning, DuPont; and Craig Walton, global real estate strategist, SAP. The panel was moderated by Robert Hess, executive managing director, NGKF Global Corporate Services.
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.