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ALLENTOWN
One Windsor
7535 Windsor Drive
Suite 208
Allentown, PA 18195 
+1 610 770 3600

CONSHOHOCKEN
Eight Tower Bridge
161 Washington Street
Suite 1090
Conshohocken, PA 19428 
+1 610 684 1850

HARRISBURG
300 N. Second Street
Suite 1203
Harrisburg, PA 17101
+1 717 730 3752

MOUNT LAUREL
1317 Route 73
Suite 109
Mount Laurel, NJ 08054
+1 856 234 9300

WILMINGTON
300 Delaware Avenue
Suite 1014
Wilmington, DE 19801
+1 302 425 4000

 

 

Renovate & Consolidate

2017 Mid-Year Office Research & Forecast Report for Eastern Pennsylvania, Southern New Jersey, and Delaware

Regional Overview: Office Market

  • The vacancy rate decreased slightly during the first two quarters of 2017 from an adjusted 12.2 to 12.0 percent.
  • Year-to-date absorption was ahead of 2016’s pace, but multiple submarkets registered occupancy losses.
  • Asking rents increased by 1.6 percent, below the 3.4 percent growth rate of the first two quarters of 2016.
  • Investor demand remained strong and user sale activity increased.

2017 Q2 Philadelphia Office Report Market IndicatorsThe regional office market had a stronger showing in the second quarter following a bumpy start to the year. Space efficiency and cost-control continue to steer leasing decisions. Nationally, a footprint reduction of 10–20 percent upon renewal is becoming the standard, and there are instances where the reduction has been significantly higher. This trend has definitely impacted the Philadelphia region as multiple large tenants renewed, downsized, or moved and consolidated.

2017 Q2 Philadelphia Office Report Supply Vacancy AbsorptionChanging attitudes about the location and layout of office space, numerous co-working options, and emerging technologies are impacting the speed, size, and final location of deals. Landlords are facing more competition from buildings that can offer flexible space and terms, speed of occupancy, or temporary space while long term decisions are finalized.

Developers are still cautious about fully speculative new construction. However, retrofits, spanning from cosmetic and amenity upgrades to full building guts, have become compulsory for landlords to compete for tenants.

Asking rents continued to increase, but at a slower rate than 2016’s steep escalation. Landlords who have made capital investments have raised rents and other national owners, who perceive Philadelphia as an under-priced market, have continued to bump asking rates.2017 Q2 Philadelphia Office Report Vacancy

Submarket Reviews

CBD Philadelphia

The vacancy rate increased from 9.4 percent at the end of 2016 to 9.5 percent in the second quarter of 2017. Space contractions by Wells Fargo, Elsevier, and Dow offset new lease activity.

PMC Property Group and Lubert-Adler Real Estate commenced on the renovation and expansion of 2400 Market Street. The Aramark-anchored building is scheduled for Q1 2018 delivery. The 213,352-square-foot office portion of Franklin Tower is set for 3rd quarter 2017 completion.

Despite the larger tenant contractions, the CBD continued to attract tenants from the suburban markets, and there was organic growth from existing tenants. The boundaries of the CBD are expanding geographically and now include different types of buildings as tenant requirements shift to non-traditional locations that provide space and timing flexibility.

Suburban Pennsylvania

Occupancy in the Pennsylvania suburbs rebounded during the second quarter following a loss in the first quarter. Class A buildings outpaced Class B space absorption year to date, but Class B buildings had increased absorption during the second quarter.

In general, buildings that have made upgrades to amenities and cosmetics have had higher leasing activity. These building have also achieved higher rents. Multiple buildings have renovations underway or planned including 200 N. Warner Road, 785 Arbor Way, 500 N. Gulph Road, and One Plymouth Meeting.

There is an increasing lack of well-located, quality space. Vacancy is anticipated to continue downward over the next two quarters, although there are fewer large requirements in the market than last year.

Southern New Jersey

The vacancy rate fluctuated between the first and second quarters, but decreased overall from 13.9 percent at the end of 2016. Camden County had a full percentage point drop in vacancy to 13.0 percent while Burlington County’s rate only dipped from 10.9 to 10.7 percent.

Camden developments continue to disrupt the office market. Holtec has begun shifting employees from Marlton to its new complex on the Camden Waterfront. U.S. Cold Storage is the latest company seeking incentives to move to Camden, joining Holtec, Subaru, American Water, NFI, TMO and Conner Strong.

New Castle County, DE

The overall vacancy rate in New Castle County increased during the second quarter to 13.0 percent. Wilmington’s large space occupiers had a major impact on the market during the first two quarters. Chemours’ decision to remain in Wilmington avoided a large loss in occupancy. However, Capital One’s consolidation into two buildings on Market Street will leave a large vacancy at Wilmington Plaza. Additionally, Highmark Blue Cross/Blue Shield is giving back space that will be taken by Capital One. Bank of America has put two of its three remaining office buildings in downtown Wilmington up for sale in an effort to consolidate operations.

In suburban Wilmington, CSC moved into its new building at Commons at Little Falls. Incyte continues to expand its complex at 1801 Augustine Cutoff, purchasing additional adjacent properties. However, HSBC will be closing its remaining call center space in Churchman’s Corporate Center in 2018.

Lehigh Valley, PA

The vacancy rate in the Lehigh Valley decreased a full percentage point to 10.6 percent.

The Six Center tower was under construction and 76-percent preleased. Development commenced on The Gateway at Greenway in Bethlehem. This project has also been substantially preleased to St. Luke’s University Health Network and Lehigh University.

Activity in the suburban market has also increased, and space has begun to tighten. The current level of requirements in the market indicates a further drop in vacancy during the third and fourth quarters.

Air Products has begun exploring options for either renovating its current campus or building at a new location in the Lehigh Valley.

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Renovate & Consolidate: Space Efficiency and Cost Control Steer Leasing Decisions

Philadelphia
Ten Penn Center 1801 Market Street, Suite 500 Philadelphia, PA 19103 United States | Tel: +1 215 925 4600