CBD Office Continues to Improve in Q3

PHILADELPHIA-The Philadelphia office market is continuing to strengthen, according to second quarter market reports and preliminary third quarter information. Vacancy rates have been decreasing and asking rental rates have been increasing, says Bill Hirschfeld, senior director with Cushman & Wakefield. “I would classify this market right now as one with a healthy equilibrium between landlords and tenants and looking like it is starting to become a little healthier for landlords,” he says.

Vacancy rates continue to be at the lowest in five years. The overall vacancy in the CBD was 11.9% for the second quarter of this year, according to Cushman & Wakefield research. Third quarter numbers were not released yet but Hirschfeld says vacancy decreased about another 50 basis points. Third quarter figures “are quite similar to the second quarter with just very small improvements in terms of a slightly lower vacancy rate and slightly higher net absorption numbers,” Hirschfeld says. Part of the reason for the strengthening of the office market is due to employment growth with local employers forecasting to add 27,000 jobs this year with approximately 6,300 of the positions being in office-using sectors, according to Marcus & Millichap’s second quarter report. Vacancy rates are also declining due to “organic growth,” Hirschfeld says. “We are still seeing tenants that are making decisions to either just expand a little or, when they redo a lease and relocate to another building, they are winding up taking more space than they are leaving behind,” he says. “That trend is certainly continuing into the third quarter.”

One of the major transactions for the second quarter was the move of the University of Pennsylvania Health Systems administrative staff from across the Schuylkill River in University City to the West of Broad submarket at 1500 Market St. There is a limited amount of space in University City and the university decided the “higher and better use” of its space was for medical uses, Hirschfeld says. The University of Pennsylvania Health Systems is expected to expand to a total of 263,117 sf at Centre Square during the next several years, according to Cushman & Wakefield’s report. The West of Broad submarket saw the most leasing activity, although the submarket also has about two-thirds of the office space in the Central Business District, Hirschfeld says. Comcast also is leasing 87% of the Comcast Center, under construction at 1701 John F. Kennedy Blvd., with the building 91% leased, according to information from Cushman & Wakefield and Marcus & Millichap’s reports.