Newmark Knight Frank (NKF) released its third-quarter 2019 office reports for the Philadelphia CBD and suburbs, Southern New Jersey, and Northern Delaware today. New-to-market tenants and headquarter relocation/expansions were the primary engines of this quarter’s stellar performance, with every market in the region experiencing occupancy gains.
In the suburban Philadelphia market, multiple large companies relocated this quarter and expanded their footprint, helping to drive nearly 202,000 square feet in quarterly net absorption. Aegis Software, YPrime, RSM, Midlantic Urology, and Schweitzer Engineering Laboratories were among occupiers established in the region that grew upon relocation. Eastern Airlines also contributed to the net gain in occupancy by relocating headquarters from Charlotte, North Carolina, to the King of Prussia submarket.
2019’s largest suburban office sale to-date closed in the third quarter: the Chesterbrook Corporate Center portfolio traded to Rubenstein Partners for $148.5 million, or $145 per square foot. The new owner plans to invest $50 million in repositioning the office park - continuing a market-wide trend that has had a strong effect on revitalizing the suburban office market over the past few years. According to managing director David Garonzik, “When new owners thoughtfully invest in their office assets and provide tenants with an elevated work environment, they are able to command higher rents. The recent growth we’ve seen in the market’s average asking rent is in large part due to this phenomenon.” Overall average asking rates in the suburbs, $27.40 per square foot were up by nearly 3.0 percent year-over-year.
New-to-market tenants contributed the lion’s share of this quarter’s 57,161 square feet of net absorption in Philadelphia’s Central Business District (CBD), the two largest being CommonGrounds and Munich Reinsurance, which signed for a combined 93,000 square feet at 1700 Market Street. Senior managing director Neil Brazitis said, “We’re tracking nearly 400,000 square feet of new-to-market tenant leasing activity so far this year and this influx is not overly dominated by one industry or funneling to one particular submarket. The appeal is city-wide.” Average asking rents in the CBD continued to escalate at the most amplified rate of any market in the region, 1.8 percent quarter-over-quarter.
Southern New Jersey’s office market led the region in quarterly net absorption as the balance of space at Camden’s newest office tower, Triad1828, was occupied by The Michaels Organization and Connor Strong & Bucklew, following NFI’s occupancy upon building completion in June. In total, the market registered 236,253 square feet in net absorption, pushing vacancy down a full percentage point to 16.3 percent. New Jersey’s tax break program that incentivized numerous large occupiers to relocate within the market to Camden has officially expired, and leasing trends indicate that space left behind by these companies in the suburban submarkets will be steadily absorbed. Executive managing director, Anne Klein stated, “Historically, growth came from established companies within the market. We’re still seeing that organic growth, but we’re also seeing an uptick in inbound activity from industries that didn’t even exist in the market five years ago, like sports betting, coworking, and medical cannabis.”
Northern Delaware’s office market realized 21,548 square feet of positive absorption in the third quarter amid large relocations in the suburban submarkets by Invista’s A&AT spinoff, CAI and Comcast. Activity was also marked by two significant capital markets sales; notably, both acquisitions were made by foreign investors. Soor Capital purchased the Chemours office condo in the DuPont Building and Trinova Real Estate purchased 400 Commerce Drive in Newark, both fully occupied by tenants on long-term, triple net leases. “Northern Delaware office product has long been in the hands of primarily local investors. As the market has matured, buyers have increasingly come from out of the market, and as we saw this quarter, from foreign sources, seeking the higher yield that a secondary market can offer” said Neal Dangello, senior managing director. Capital markets activity in Northern Delaware may remain elevated, as multiple office assets are currently being marketed for sale.
About Newmark Knight Frank
Newmark Knight Frank (“NKF”), operated by Newmark Group, Inc. (“Newmark Group”) (NASDAQ: NMRK), is one of the world’s leading and most trusted commercial real estate advisory firms, offering a complete suite of services and products for both owners and occupiers. Together with London-based partner Knight Frank and independently-owned offices, NKF’s 16,000 professionals operate from approximately 430 offices on six continents. NKF’s investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting, government-sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. For further information, visit www.ngkf.com. Newmark Group is a publicly traded subsidiary of BGC Partners, Inc. (“BGC”) (NASDAQ: BGCP), a leading global brokerage company servicing the financial and real estate markets.
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