PHILADELPHIA-Good news is on the horizon for the City of Brotherly Love. The lease market is growing, albeit incrementally. There is not too much to be carried away with, however, as much of the growth is being led by smaller firms which are doing more rearranging of space than any massive corporate expansions, which traditionally put larger progressive dents in the vacancy rates.
“This is the third quarter that we’ve tracked positive absorption,” explains Jones Lang LaSalle’s vice president, brokerage operations, here, Jennifer Lamprect. “The fourth quarter of 2010 was our first quarter of positive absorption in a number of years and the positive trend has continued.”
Lamprect notes that even some of the larger deals in the market are simply switching one large space for a comparably-sized one resulting in a zero-sum gain in the market. The smaller firms are pushing growth regionally. GlaxoSmithKline renewed its office, but there is anticipation of its new 205,000-square-foot facility, which broke ground this quarter. Children’s Hospital of Philadelphia (CHOP) renewed its 252,000 square feet at Wanamaker Building, while expanding 60,000 square feet. One of the largest leases of the quarter was DaVita Dialysis’ new rental of 110,000 square feet in Malvern and Bala Cynwyd is leading the rest of the submarkets.
The push has been incremental, but steady. Lamprect notes that “Year-over-year, we’re looking at a 100 basis point improvement in vacancy going from 17.4% to 16.4%.” Similar to its mid-major cousin, Boston, a limited construction pipeline has helped Philadelphia keep vacancy steady, if not completely reduced by this point. Sublease space has prevented a full assault on rates, but JLL points to less concessions in the marketplace as a trend, which could be a harbinger for rising rates in the near term.
Lamprect says there is only one other large construction project on the horizon. “The only construction we’re seeing that may come out of the ground is being driven by Brandywine, which is Cira Centre South, which has been proposed for a number of years now. If they were to find an anchor tenant they would probably proceed with the construction on that. They also purchased land at the end of last year in the city, at Market Street. That’s just a vacant lot, but if they had an anchor tenant, they would start construction now.”
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