Decrease in Market West rent premium to Market East. Source: JLL Research. 11 consecutive quarters of Class A rent growt
Office Insight Philadelphia | Q3 2015
CBD tightens further in advance of new options
Tenant relocations and pipeline diversify future large block availabilities Historically low vacancy will see some relief over the next 12-24 months as a range of large blocks become available. The long-vacant One Franklin Tower is set to undergo redevelopment into a mixed-use property, with a single 200,000 square foot block in the remaining low-rise office. The removal of 400,000 square feet of office inventory contributes to this quarter’s sharp vacancy rate decline. The Design Center’s relocation sets the stage for repositioning at 2400 Market, while moves from Dow, Radian, Obermayer, and the contraction at Cigna create upcoming opportunities for contiguous space at previously constrained buildings. With most rollover occurring in Class A and Trophy, and conversions still progressing in commodity product, Class B will experience ever-tightening conditions for several years. Market East continues to narrow the gap in the traditional CBD Ever since Penn Center’s initial development, the east side of Broad Street has trailed the west in terms of office rents. Recent quarters have seen that gap narrow considerably. Two years ago, Class A asking rents were 16.0 percent higher in Market West than in Market East. A year ago, the edge had lessened, with the gap standing at 14.1 percent. Accelerated rent growth over the past year has nearly halved this lead, with Class A asking rents in Market West currently only 7.4 percent higher than the Market East average. Deliveries at 34 S. 11th and in boutique buildings in the Brickstone portfolio may narrow the gap further.
44,361,818 Total inventory (s.f.)
8.9%
Total vacancy
47,832
Q3 2015 net absorption (s.f.)
250,705
YTD net absorption (s.f.)
Class A rental rate increases since last quarter University City
4.7%
Navy Yard
4.4%
Market West
3.0%
CBD Overall
2.3%
Market East
0.9%
Source: JLL Research
Current and future available blocks (now through 2017) # of blocks
11 consecutive quarters of Class A rent growth; University City leads Every CBD submarket continues to experience asking rental rate growth in Class A product as large blocks remain scarce and expanding and new-to-market tenants seek high-quality space. Market East’s recent surge slowed to just below 1.0 percent rent growth in the most recent quarter, while the most constrained submarkets of University City and The Navy Yard saw increases above 4.0 percent. Larger tenants will have few choices in these areas for the foreseeable future, allowing developers of speculative product to seek record-setting rates in new projects including FMC Tower and 1200 Intrepid.
10
Class A
2 8
0
50,000 - 100,000 s.f.
Class B
1 2
4
100,000 - 200,000 s.f.
> 200,000 s.f.
Source: JLL Research
Decrease in Market West rent premium to Market East
-47.1%
Decrease from 2,257Q3 2014 to Q3 2015 Source: JLL Research
$27.70
Direct average asking rent
0.5%
12-month rent growth
2,224,864
Total under construction (s.f.)
79.6%
Total preleased
Current conditions – submarket
Historical leasing activity (s.f.)
Peaking market
University City Navy Yard
Rising market
Market West Market East
5,000,000
Tenant leverage
Landlord leverage
6,000,000 Falling market Bottoming market
4,000,000 3,000,000
4,331,394
4,918,180 3,756,623
2,845,798
2,411,586
2,000,000 1,000,000 0
Source: JLL Research
2011
2012
2013
2014
YTD 2015
Source: JLL Research
Total net absorption (s.f.) 2,000,000
1,649,589
1,500,000
1,145,701
905,713
1,000,000
511,220
348,933
500,000
381,393
250,705
116,886
0 -500,000 -1,000,000
2006
2007
2008
-604,374
-562,079
2009
2010
2011
2012
2013
2014
YTD 2015
Source: JLL Research
Total vacancy rate (%) 20.0% 15.0% 10.0%
10.7%
12.4%
10.2%
11.7%
13.5%
11.8%
11.3%
12.2%
10.5%
5.0% 0.0%
2006
2007
8.9%
2008
2009
2010
2011
2012
2013
2014
YTD 2015
$25.20
$25.81
$25.73
$26.30
$26.39
$26.30
$26.72
$27.85
$27.70
2007
2008
2009
2010
2011
2012
2013
2014
YTD 2015
Source: JLL Research
Direct average asking rent ($ p.s.f.) $30.00 $25.00
$22.94
$20.00 $15.00 $10.00 $5.00 $0.00
2006
Source: JLL Research For more information, contact: Clint Randall |
[email protected]
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