Office Construction Activity Picking up in Philly
CBRE in its third quarter office report states that new office development is now forecast to be just below 2.5 million square feet by the end of 2020.
PHILADELPHIA—The office construction pipeline is bouncing back from the last two years when new construction in the city failed to break the 1 million-square-foot threshold.
CBRE in its third quarter office report states that new office development is now forecast to be just below 2.5 million square feet by the end of 2020.
Occupancy gains in Philadelphia’s CBD during the third quarter pushed year-to-date net absorption into positive territory. CBRE notes that University City saw a significant portion of these gains with Drexel University moving into multiple floors at 3675 Market St. Another notable move-in included the Biden for President Campaign at Centre Square.
The region’s vacancy rate stood at 14.7% at the end of the third quarter. The overall average asking rent stood at $27.18-per-square-foot and net absorption totaled 809,683 square feet. At present, there is 834,619 square feet of office space under construction in the area.
Modest rent growth across the metro area was driven primarily by asking rate increases in downtown and the suburbs, with the latter posting a $0.43 uptick, quarter-over-quarter. Additionally, Class A rates grew in the CBD, where the lack of available space in trophy assets continued to put upward pressure on rents.
“Tenants in the Philadelphia region continue to invest in their office space as a tool to recruit and retain the best talent in today’s competitive labor market,” Les Haggett, first VP, CBRE. “This dynamic has fueled a competitive real estate environment, with companies starting the search for office space much sooner as desirable options are limited. This continues to push rental rates to new historical highs and drive the need for new office development to meet the demand for today’s new workplace.”
Recently, the real estate market in Philadelphia has seen the emergence of the e-sports industry in the city. In September, a partnership of Comcast Spectacor and the Cordish Cos. broke ground on a 3,500-seat e-sports arena in South Philadelphia, which will house the Philadelphia Fusion, among other related events.
CBRE adds that multiple e-sports tenants are in the market for office and event space in Downtown Philadelphia. Interest from these unique users for space downtown could increase landlords’ openness for more creative buildouts capable of housing the types of events e-sports tenants need, the report states.
On the capital markets front, the most notable investor sale of the third quarter was Rubenstein Partners’ acquisition of Chesterbrook Corporate Center for approximately $134-per-square-foot.
Overall, the Philadelphia office market showed signs of healthy interest from investors as sales volumes persisted near recent historical highs, CBRE states in the report.