"Additional sublet space fueled the increase in the current vacancy rate, and has pushed the market away from the market equilibrium the CBD was experiencing 12 months ago," Luff says.
As a result, the average rental rate for class-A office space in Center City has dropped to $22.60 per sf, according to Luff's report. That is 11.9% lower than the asking rental for such properties at year-end 2001. According to his company's research, there are now seven class-A properties with space availabilities of more than 100,000 sf. Together, the available space in those buildings represents more than 30% of the CBD's total class-A and class-B office vacancy.
"Class-B space has not been as adversely affected," he says, noting the average rental rate in these properties is now $17.94 per sf, down just 5% from year-end 2001.
The overall decline, however, has brought new, planned construction, including two new towers initially planned for occupancy in 2005, to a halt. They are One Pennsylvania Plaza to be developed by Malvern, PA-based Liberty Property Trust, and Cira Center, by Plymouth Meeting, PA-based Brandywine Realty Trust.
Luff predicts the current situation will remain relatively stable for the remainder of this calendar year, and he sees the existing rates as a short-term bargain opportunity for prospective Center City tenants into, but not beyond, early 2003.
Ken Zirk, vice president, and Craig Worton of Trammell Crow participated with Luff in the CBD office report.
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