Newmark Grubb Knight Frank (NGKF) released its second quarter 2016 office reports for the greater Philadelphia region this week. Greater Philadelphia’s overall vacancy ticked up 20 basis points quarter-to-quarter, to 14.8 percent. Strong activity in the Suburban submarkets contributed to the region’s 299,084 square feet in quarterly occupancy gains. In Philadelphia’s Central Business District (CBD), the 622,000-square-foot FMC Tower delivered 75.0 percent pre-leased. FMC vacated 200,000 square feet at 1735 Market Street in the second quarter 2016 to occupy 250,000 square feet at the new West Market Street submarket trophy property. Additionally, the University of Pennsylvania committed to 100,000 square feet at the building.
The redevelopment of East Market’s 34 South 11th Street and West Market’s One Franklin Tower will deliver, in total, almost 400,000 square feet over the next 12 months and add much needed large blocks of office space to the market. Wayne Fisher, NGKF executive managing director remarked, “Tenants desiring premium space, particularly in the centralized West Market Street submarket, will assure that trophy-quality product when added to the market, will not remain available for long.” During the quarter, Vue32, a $56 million, mixed-use development located in the University City submarket broke ground. Also in development news, details were released on Schuylkill Yards, a University City-based, joint venture between Drexel University and Brandywine Realty Trust. The future $3.5 billion mixed-use community is projected to add 5.0 million square feet of residential, office, retail, educational facilities and research laboratories to the core over two decades.
Suburban Philadelphia exhibited strong market fundamentals during the first six months of the year. The market posted an eighth consecutive quarter of occupancy gains, while year-to-date overall net absorption totaled 323,112 square feet. Year-over-year, the overall vacancy rate abated 110 basis points to 16.2 percent. Class A vacancy was slashed 210 basis points from one year ago after accumulating 346,422 square feet in tenant growth over the first six months of the year. During the quarter, pharmaceutical firm Incyte moved into 161,000 square feet of the former Endo Pharmaceutical space at Painter’s Crossing Office Campus, located in the Southern 202 Corridor. Also, TruMark Financial relocated its headquarters to 74,000 square feet at 335 Commerce Drive in Fort Washington. Jeff Mack, NGKF executive managing director observed, “A tightening of Class A availability, specifically around core suburban submarkets, will redirect tenants further west, where premium space is more plentiful, or where the submarkets can support new construction.” During the second quarter, Radnor-based Highway to Health executed a lease for a 110,500-square-foot, built-to-suit to be located in King of Prussia. This will be King of Prussia’s first new office project since 2008. “With vacancies continuing to tighten, and continued tenant demand, especially in Class A, we expect to see one or two new office projects announce within the next year,” said Mack.
Greater Philadelphia’s overall rental rate climbed $0.59 per square feet from the first quarter to $26.88 per square feet. The CBD’s Class A average rent for vacant space reached an all-time high of $32.44 per square feet in part to the remaining available space at FMC Tower, which is quoting a rent of $42.00 per square feet NNN. Suburban Class A rents ticked up over the past 12 months as large blocks of premium space dwindled. High tenant demand in the suburbs spilled over to Class B properties where the average rent increased $1.00, year-over-year, to $24.35 per square feet.
Healthcare technology firm, Tabula Rasa’s possession of 74,609 square feet at 228 Strawbridge Drive in the Moorestown submarket, helped Southern New Jersey’s absorption rebound from a weak first quarter. Quarterly overall net absorption stood at 87,663 square feet, which pushed year-to-date absorption just into the positive range, at 3,490 square feet. In addition to Tabula Rasa, Comcast expanded into 42,000 square feet at 401 White Horse Road in the Voorhees/Gibbsboro submarket, bringing its footprint at the property to 150,000 square feet. As a result, Southern New Jersey’s overall vacancy rate contracted by 50 basis point from the first quarter, to 17.4 percent in the second quarter 2016. NGKF Executive Managing Director, Anne Klein, observed that, “The long-term health of the Southern New Jersey market depends on the ability to attract tenants from outside the state, or retain those that will expand their employment rolls.” At the close of the first half of 2016, Bayada Home Healthcare Services disclosed its intention to remain in Southern New Jersey after it purchased Fairway Corporate 1 and 2 in the Pennsauken/Camden submarket. The healthcare provider announced months ago that it was seeking to consolidate offices from Southern New Jersey and Pennsylvania into one location. Eager to keep Bayada within the state, New Jersey offered Bayada an $18.4 million tax incentive plan that will keep 350 jobs within the state and create over 100 new positions.
There was major news regarding the future of two New Castle County, Delaware tenants. DuPont spinoff, Chemours, is reportedly in talks with a developer to renovate its current home at 1007 North Market Street. The firm is considering options outside of the state. Delaware has offered Chemours a $7.9 million tax incentive package to remain. Additionally, pharmaceutical firm AstraZeneca announced that it is considering relocating its headquarters within Delaware or renovating its Fairfax location. According to Wills Elliman, NGKF senior managing director, “While vacancy in New Castle County is moving back towards pre-recession levels, Chemours and AstraZeneca’s departure from New Castle County, would be a blow to recovery.” A year-over-year comparison exhibited a 190 basis point contraction in the overall vacancy rate, which ended the quarter at 16.9 percent. The first six months of 2016 tallied 117,173 square feet in positive overall net absorption. Second quarter posted 53,442 square feet in tenant gains bolstered by Citibank’s 22,926-square-foot expansion at 1000 N West Street and Zenbanx’s 27,653-square-foot occupancy at 650 Naamans Road.
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