Newmark Grubb Knight Frank (NGKF) released its first quarter 2017 office reports for the greater Philadelphia region. The reports detail increased vacancy from tenant consolidations in the Philadelphia suburbs and Philadelphia Central Business District (CBD). As a result, quarterly absorption was negative for greater Philadelphia at 464,424 square feet. Rent growth moderated or decreased slightly in suburban markets but asking rents for Class A space in the CBD continued on an upward trajectory.
The CBD closed the first quarter of the year with 358,347 square feet in negative absorption. Four of the five tracked submarkets within the CBD reported an uptick in vacancy from year-end 2016. “Despite the initial negative impact to the CBD,” notes Craig Scheuerle, NGKF executive managing director, “the return of large blocks of non-trophy, Class A space will not weigh heavily on rents in premium buildings as tenants remain hungry for quality space in prime locations.” The University City submarket had 226,000 square feet returned to the market by the Children’s Hospital of Philadelphia (CHOP) as it prepares to occupy a new facility by the South Street Bridge. In the West Market submarket, PNC Bank renewed and downsized by 135,000 square feet at 1600 Market Street.
Vacancy in the Philadelphia suburban market rose 20 basis points from year-end 2016 to 16.0 percent. There were upticks in vacancy for both Class A and B inventory. In the first quarter, a total of 245,000 square feet came back to the market in the King of Prussia submarket when GSK relocated staff to its Navy Yard headquarters. Also, Shire, SunGard, Radial (formerly eBay) and Cerner consolidated operations. Jeff Mack, NGKF executive managing director said, “Additional blocks of Class A or B space returned to the market will provide some opportunities for sizeable tenants, as large blocks have been scarce, and we expect older inventory to undergo renovations.” Across the suburban market, Class B rates experienced a small uptick.
Southern New Jersey reported 65,036 square feet in quarterly occupancy gains with tenant activity centered on Class B inventory. Vacancy in both Class A and B inventory declined from year-end 2016 and posted vacancy rates of 11.3 percent and 18 percent, respectively. The Class A space average rent increased, but the Class B rent average declined due to space with higher than average asking rents coming off the market.
The Camden waterfront was in the news with the announcement of a future tower owned and occupied by a partnership of Conner Strong & Buckelew, NFI and The Michaels Organization. Anne Klein, NGKF executive managing director notes, “While this new project is good news for Camden’s revitalization, the surrounding submarkets will be negatively impacted over the next two years by the departure of these firms along with Subaru and American Water’s consolidation to Camden.”
After four consecutive quarters of negative growth, tenant activity picked up in the Wilmington Central Business District (CBD). The Buccini/Pollin Group announced that it purchased the DuPont Building from DuPont and Chemours would sign a long-term lease. The submarket reported 35,361 square feet in occupancy gains over ninety days that pushed vacancy down 60 basis points. This positive activity did not benefit CBD rents with the Class A average rental rate flat from year-end 2016 and a decline in the Class B average. Wilmington North and South submarkets reported 48,407 square feet in positive net absorption. “Rents will continue to move upwards in the suburban Wilmington submarket over the next twelve months,” said Wills Elliman, NGKF senior managing director, “but expect flat rent growth in the CBD.”
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