Newmark Grubb Knight Frank (NGKF), one of the world’s leading commercial real estate advisory firms, today presented its 2013 forecast for the commercial real estate market in Center City Philadelphia. Based on the company’s proprietary research, Center City market fundamentals will remain relatively flat over the next 12 months, with the exception of investment sales volume, which is expected to increase, and rental rate appreciation in trophy assets. The 2013 forecast was presented at the firm’s annual forecast breakfast, which featured keynote speaker Howard Lutnick, chairman and chief executive officer, BGC Partners, Inc. and Cantor Fitzgerald, L.P., as well as a number of NGKF market specialists.
“Philadelphia’s solid market fundamentals and business diversity remain the key drivers behind commercial real estate activity in this region,” said Robert Clements, executive vice president and managing director of NGKF’s Philadelphia region, which includes offices downtown as well as in Wayne, Pa., Marlton, N.J., and Wilmington, Del. “We expect a modest uptick in office leasing as the market continues to improve, with a return to robust growth delayed until the labor market recovers in earnest and corporate users feel more comfortable planning for expansion. The investment market holds more promise, as local and out-of-town investors evaluate opportunities in the nation’s fifth largest metro. This should lead to additional sales activity in 2013, both in the CBD and beyond.”
In 2012, office leasing volume totaled approximately 2.8 million square feet, a 40% increase over 2011, driven by a handful of large renewals and new lease transactions. The office leasing market is forecasted to post a net absorption of 150,000 square feet by the end of 2013. Vacancy, which ended 2012 at approximately 14.1% overall, is projected to drop to 13.75% by the end of 2013, faring better than the national rate of 15.2%. Despite this modest improvement, rental rates will remain flat, with the exception of Philadelphia’s trophy assets, where direct vacancy is a very healthy 5.1% and rents commanded $37.05 per square foot full service gross at the end of 2012.
“Although Center City vacancy is currently higher than in other metros in the northeast corridor, Philadelphia is holding its own when compared with major markets throughout the country,” said Sid Smith, executive managing director. “Additionally, the CBD continues to outperform the region’s suburban office markets.”
Office vacancy in both Suburban Pennsylvania and Southern New Jersey ended the year at over 18%, while Wilmington, Del., posted vacancy of 17.3%. By contrast, in the core CBD, the strong education and health services sectors are a major driver of office demand, especially in the University City submarket, where the trend of these institutions taking major blocks of space remains intact.
Wayne Fisher, executive managing director, said, “A focus on improved space utilization continues to temper a robust rebound in the leasing market as tenants wring out excess capacity. There are still opportunities to move from Class B to Class A buildings, and we expect that in the year ahead, tenants will continue to seek out better space and place increasing emphasis on sustainable, efficient real estate.”
New construction in Center City Philadelphia has remained in check, with only two projects totaling 369,000 square feet currently under development, both in the University City submarket. The 97,000-square-foot 2.0 University Place, which is the first LEED Platinum Pre-Certified building in Philadelphia and one of only a few throughout the country, is the sole project to be delivered in 2013.
In 2012, Center City experienced four significant investment transactions. Two of the properties, 1616 Walnut and 260 S. Broad, are being converted to residential use by their new owners, which is continuing to change the face of downtown.
“The investment market has seen more than 6 million square feet of office properties sold for conversion in the last 15 years,” said Michael Margolis, senior managing director. “We expect to see more of this type of activity, as residential densities continue to increase in Center City.”
Overall, Philadelphia, like all major cities, is affected by national economic trends. Mr. Fisher cautioned that low GDP growth and subpar job creation may slow rent growth and increases in property values through the first part of the year.
For more information about NGKF’s outlook for the Center City Philadelphia commercial real estate market, contact Mira Matic at 973.461.9005.
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 300 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.
Newmark Grubb Knight Frank 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.