Jesse Serwer is associate editor of Real Estate New York
PHILADELPHIA-The office vacancy rate in suburban Philadelphia markets will continue to decrease, likely dipping below 15% over the next six months, while new construction will continue to increase, Colliers, Lanard & Axilbund predict in their year-end 2005 market report. At year's end vacancy rates in this market--which includes Pennsylvania suburbs to the west and south of Philadelphia--hovered around 17.3%, with a 17.1% vacancy among class A space and a 17.5% vacancy within the area's class B space.
Overall, vacancy here is down from 18.2% in 2004 and 20.7% in 2003, following a steep incline after the area posted an 11.9% vacancy rate in 2000. Direct vacancy at year's end 2005 was at 15.6%, according to the report, and average asking rents were $22.85. The encouraging numbers for the Pennsylvania suburbs come as the vacancy rate in the Philadelphia CBD increased to 13.9% at the end of the year, as tenants began relocating to the newly completed Cira Centre.
By contrast, GVA Smith Mack's fourth quarter numbers for the Pennsylvania suburbs were not as rosy, though they showed a declining vacancy of 19.6% overall, and a 16.9% direct vacancy. Asking rents, according to GVA, were $21. 46.
Among the submarkets showing the greatest recoveries, according to both reports, were King of Prussia-Wayne, which benefited from a lack of speculative construction in dropping from 19% to 16.4% during 2005, according to Colliers, and Norristown-Valley Forge, where vacancy decreased from 28% at the end of 2004, to 22.9% in 2005, according to Colliers. The Plymouth Meeting-Blue Bell submarket posted the lowest vacancy rate, with 11.9%, while Main Line-Radnor posted the highest, despite two large deals at 555 E. Lancaster Ave., which helped vacancy drop from 40% at year's end 2004 to 34% the following year.
"There are really diminishing number of larger blocks of space so that vacancy may be deceptively high," says Rose Penny, market research director for Colliers. "I think vacancy will continue to decrease after that. I think the King of Prussia market probably will tighten more and so will Plymouth Meeting-Blue Bell."
Elsewhere, the Lehigh Valley office market posted its largest decrease in vacancy in five years, according to Colliers' report. The 12.9%-vacancy rate posted at year's end also comes as a slate of new development projects are under way, including the Alvin H. Butz Co.'s 76,000-sf new corporate headquarters at 901 Hamilton St.
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