Demand for office space in the greater Philadelphia market shrunk slightly during the first quarter, as reported in Newmark Grubb Knight Frank’s newly released Q1 Philadelphia office trend report. But, owner-user transactions that took vacant buildings out of the office statistical set actually pushed overall vacancy down 20 basis points to settle at 16.8%. In Philadelphia’s CBD alone, over two million square feet of space has been purchased for conversions or owner-user purposes since 2005, offsetting that market segment’s additions of nearly the same amount of new product brought to market at Cira Centre North and Comcast Center during that same time frame.
In Philadelphia and its surrounding counties, asking rents moved laterally in the first quarter but posted varying performances by class and geography where tighter Class A markets such as University City, Bala Cynwyd and Radnor/Main Line enjoyed rent growth. Other submarkets and classes generally saw rents hold flat or move downward as higher vacancies continued to stall rent growth throughout the greater market.
In Southern N.J., the recovery in the office market continued with 121,000 square feet of demand growth pushing overall vacancy down 60 basis points to 17.1%. PHH Mortgage’s 60,000-square-foot lease at 10000 Midlantic accounted for half of this demand. This underscored a recent trend reversal where financial services firms suffered the greatest losses in this market during the downturn of 2008 and 2009. While this sector has yet to reclaim all the space it vacated during that time, it since has become the greatest contributor to this market’s recovery.
Recovery in the Wilmington, Delaware office market stalled during the first quarter as J.P. Morgan vacated the 90,000-square-foot building at 200 White Clay Center Drive, relocating into its newly-acquired, 97,000-square-foot building at the Iron Hill Corporate Center. While 74,000 square feet of occupancy losses were tallied as a result of this move, vacancy shifted laterally as the building had been 100% vacant and is now no longer a part of the vacancy metric. Overall, in spite of the financial service sector’s shrinking footprint resulting from this shift, it remains the leading demand driver in the market over the past year.
Key statistics for the Philadelphia office market during the first quarter of 2013 are as follows:
• Vacancy Rate: 16.7%
• Absorption: -73,672 square feet
• Average Asking Rent: $25.03/SF full service
• Class A Asking Rent: $28.36/SF full service
Key statistics for the Southern N.J. office market during the first quarter of 2013 are as follows:
• Vacancy Rate: 17.1%
• Absorption: 121,510 square feet
• Average Asking Rent: $20.98/SF full service
• Class A Asking Rent: $24.79/SF full service
Key statistics for the Wilmington office market during the first quarter of 2013 are as follows:
• Vacancy Rate: 16.8%
• Absorption: -74,359 square feet
• Average Asking Rent: $23.50/SF full service
• Class A Asking Rent: $26.98/SF full service
Looking forward, expect demand growth to temper given that traditional office occupying sectors posted minimal growth to slight losses in employment over the past few months. Large scale demand deterioration is not likely as future employment performance is not expected to deteriorate significantly over the short term.
To access the full Philadelphia, Wilmington and Southern N.J. office reports, visit /research. To speak with a NGKF local market expert, please contact Mira Matic at email@example.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.
With roots dating back to 1929, Newmark Grubb Knight Frank’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, 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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