Stronger Recovery - Colliers International

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On the owner-occupant side, Comcast committed to the balance of office ... SIZE SF. TYPE. 1110 American Parkway NE. Lehi
Q2 2015 | Office Research & Forecast Report

EASTERN PENNSYLVANIA SOUTHERN NEW JERSEY DELAWARE

Stronger Recovery Regional Overview >> The vacancy rate decreased from 13.4 at the end of 2014 to 12.6 percent during the first two quarters of 2015. >> Year-to-date absorption, at 1.35 million square feet, more than doubled 2014’s pace for the first half of the year. >> Redevelopment activity escalated, but new ground-up projects were limited to build-to-suits. >> Asking rents increased by an average of $0.28-per-square-foot or 1.2 percent market wide. >> Investor demand remained strong, with more new buyers and fewer lender-held sales. The long-anticipated office market recovery appeared to be taking hold during the first half of 2015. The overall Class A vacancy rate was in the 10 percent range, with multiple submarkets in the low single-digits. A few submarkets registered occupancy losses, but these were minor. The tightening market for Class A space has resulted in increased demand for Class B space. Class B space absorption surpassed Class A for the first time since 2010. Asking rents for Class B space increased proportionately. Improving market fundamentals, fewer quality space choices, and an aging inventory are driving increased redevelopment. In the last three years redevelopment activity has been dominated by facade and amenity improvements to reposition assets, with a few gutting and reskinning projects such as Aborcrest and CrossPoint. This type of project will become more widespread, and expect to see an increase in full tear downs of under-performing buildings. Some of these will be redeveloped as office, but others are slated for mixed-use, multi-family and hotel uses.

MARKET INDICATORS

PA/NJ/DE Q4 2014

Relative to prior period

PA/NJ/DE Q4 2015*

VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE *Projected

Arrows compare current period to the previous period and forecast the next period.

NEW SUPPLY, VACANCY AND ABSORPTION 20%

3.0

15% 2.0 10% 1.0 5%

0.0 MSF

0% 12 Absorption

13 14 Construction

15 Rate Vacancy

MAJOR OFFICE MARKET VACANCY 20%

CBD Philadelphia PA Suburbs

15%

Southern NJ Wilmington / New Castle

10%

Lehigh Valley 5%

0%

12

13

14

15 Q2

Regional Overview (continued) Healthcare systems and health insurers were heavily represented on the list of largest lease deals during the first half of 2015. There were still tenants seeking smaller, more-efficient spaces, but more companies were expanding.

Office investment activity was robust during the first half of 2015. There was a dwindling supply of lender-held offerings and more investment-grade property trades. Tier REIT, Equity Commonwealth, Brandywine Realty, and Liberty Property Trust divested non-core assets, allowing national and regional investors to increase their holdings. This trend is expected to continue through 2015. There was an influx of healthcareoriented investors purchasing office buildings.

On the owner-occupant side, Comcast committed to the balance of office space in the new Liberty-developed, jointly owned-tower. Guardian Life purchased land for a new 282,000-square-foot building in the Lehigh Valley.

Recent Transactions Q1 and Q2 2015 NOTABLE SALES ACTIVITY PROPERTY ADDRESS

LOCATION

BUYER

SIZE SF

SALES PRICE / SF

TYPE

1818 Market Street

Phila CBD Market West

Shorenstein Properties

1,143,040

$162

Investor

833 Chestnut Street

Phila CBD Market East

HCP, Inc.

705,061

$228

Investor

30 S. 17th Street

Phila CBD Market West

CBRE Investors

617,476

$165

Investor

1110 American Parkway NE

Lehigh Valley

Patriot Equities L.P.

600,261

$57

Investor

Phila CBD Market West

CBRE Investors

553,349

$126

Investor

Christiana/Delaware Corp. Center

Suburban Wilmington

Buccini/Pollin Group

485,182

$103

Investor

3 Beaver Valley Road

Suburban Wilmington

Medistar Corp.

265,503

$233

Investor

Multiple submarkets

Lone Star Funds

228,415

$71 (est.)

Investor

Lehigh Valley

Jaindl Land Company

124,408

$60

Investor

Southern Jersey

Zamir Equities

121,737

$140

Investor

Suburban Wilmington

Avi Nechemia

105,066

$60

Investor

1650 Arch Street

Equity Commonwealth portfolio 7660 Imperial Way 457 Haddonfield Road 4550 New Linden Hill Road 1000 Atrium Way

Southern Jersey

Zamir Equities

99,668

$113

Investor

550 Pinetown Road

Fort Washington

Intercontinental RE & Development

98,382

$26

Investor

2250 Hickory Road

Plymouth Meeting/Blue Bell

Somerset Properties

83,055

$105

Investor

King of Prussia/Wayne

Griffin-American Healthcare REIT

73,326

$252

Investor

Southern Jersey

United Realty Trust Incorporated

52,600

$181

Investor

700 S. Henderson Road 402-404 Lippincott Drive

NOTABLE LEASE ACTIVITY PROPERTY ADDRESS

LOCATION

TENANT

SIZE SF

TYPE

Lehigh Valley Suburban

St. Luke's Health System

200,000

New

Southern New Jersey

Cooper University Health System

123,000

New

Lower/Central Bucks

ABB

115,838

Renewal/Expansion

Lehigh Valley Suburban

Avago Technologies

110,000

New: lease-back

CBD Phila Market East

American Bible Society

100,000

New

Lehigh Valley Suburban

Intel Americas

78,811

Expansion

Fort Washington

Trumark

74,811

New

Horsham

Philidor Rx Services

62,123

New

5 Sentry Parkway

Plymouth Meeting/Blue Bell

Linde Engineering

58,000

Renewal

400 Campus Drive

Norristown/Valley Forge

FIS

50,000

Sublease

1110 American Parkway NE 100 Market Street 125 E. County Line Road 1110 American Parkway NE 401 Market Street 1110 American Parkway NE 335 Commerce Drive 400 Lakeside Drive

200 Commerce Drive

Suburban Wilmington

AAA Mid-Atlantic

68,034

Renewal/Downsize

1601 Cherry Street

CBD Phila Market West

excellRx

68,090

Renewal/Downsize

7660 Imperial Way

Lehigh Valley

Lehigh Hansen

67,078

New: lease-back

1500 Market Street

CBD Phila Market West

Obermayer Rebmann et al

60,544

New

3600 Horizon Drive

Central/Lower Bucks

StoneMor

57,000

Mew

1735 Market Street

CBD Phila Market West

Bank of New York Mellon

48,000

Renewal/Downsize

1735 Market Street

CBD Phila Market West

Radian

45,000

New

303 Lippincott Drive

Southern New Jersey

Virtual Hospital

40,453

New

Suburban Wilmington

Wells Fargo

38,300

New

Colliers 31,609 International

New

2200 Concord Pike Street 230 S. 16th Research

& Forecast Report

CBD Phila Market| West | Q2 2015 Pennsylvania,

New

JLTDelaware RE Inc. Jersey,

|

Market Comparison Update OFFICE MARKET INVENTORY

DIRECT VACANT

SUBLET VACANT

TOTAL VACANT

VACANCY RATE

NET ABSORPTION ANNUAL

COMPLETIONS YTD*

UNDER CONSTRUCTION

AVG. ASKING RENT

A

30,253,239

2,858,361

168,112

3,026,473

10.0%

111,028

0

1,958,682

$28.91

B

12,286,131

1,107,382

42,941

1,150,323

9.4%

267,698

0

0

$24.36

Total

42,539,370

3,965,743

211,053

4,176,796

9.8%

378,726

0

1,958,682

$27.66

A

25,698,933

2,633,644

268,647

2,902,291

11.3%

323,078

0

365,400

$27.99

B

32,688,585

4,923,706

289,885

5,213,591

15.9%

403,406

0

0

$22.76

Total

58,387,518

7,557,350

558,532

8,115,882

13.9%

726,484

0

365,400

$24.63

SUBMARKET

CBD Philadelphia

Pennsylvania Suburbs*

Southern New Jersey A

8,170,521

878,952

91,088

970,040

11.9%

(4,542)

0

0

$21.43

B

8,670,655

1,462,695

7,427

1,470,122

17.0%

116,893

0

0

$19.43

Total

16,841,176

2,341,647

98,515

2,440,162

14.5%

112,351

0

0

$20.23

A

12,934,710

1,321,252

6,579

1,327,831

10.3%

109,631

0

0

$26.42

B

5,375,880

1,217,359

5,968

1,223,327

22.8%

(92,904)

0

0

$19.87

Total

18,310,590

2,538,611

12,547

2,551,158

13.9%

16,727

0

0

$23.28

A

5,748,576

656,406

1,806

658,212

11.5%

44,057

168,000

281,680

$20.52

B

3,465,396

344,898

34,040

378,938

10.9%

70,741

0

0

$17.74

Total

9,213,972

1,001,304

35,846

1,037,150

11.3%

114,798

168,000

281,680

$19.50

A

82,805,979

8,348,615

536,232

8,884,847

10.7%

583,252

168,000

2,605,762

$26.80

B

62,486,647

9,056,040

380,261

9,436,301

15.1%

765,834

0

0

$21.86

145,292,626

17,404,655

916,493

18,321,148

12.61%

1,349,086

168,000

2,605,762

$24.25

Wilmington-New Castle, DE

Lehigh Valley, PA

MARKET TOTAL

Total

SUBMARKET VACANCY RATES Main Line/Radnor

DEFINITIONS

5.7%

Conshohocken

Absorption (Net): The net change in occupied space over a given period of time.

7.9%

Bala Cynwyd

8.2%

Burlington County

9.5%

Horsham/Jenkintown

9.6%

Market East/Independence Mall

9.7%

Market West

Vacancy Rate: A percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation on the space.

9.9%

Malvern/Exton/West Chester

11.7%

Norristown/Valley Forge Wilmington-Suburban

13.3%

Wilmington-Downtown

14.7%

Delaware County

14.8%

Plymouth Meeting/Blue Bell

14.8%

King of Prussia/Wayne

Under Construction: Counted when steel is up, not at the commencement of site work. Build-to-Suit: A term describing property that was developed specifically for a certain tenant to occupy. Can be either leased or owned by the tenant.

15.9%

Camden County

20.2%

Ft. Washington

22.5%

Central/Lower Bucks

*Note: the surveyed inventory for the Pennsylvania Suburbs was redefined in 2014. Adjustments were made to prior reporting periods

23.4%

0%

3

Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation.

12.8%

10%

20%

30%

Research & Forecast Report | Q2 2015 | Pennsylvania, New Jersey, Delaware | Colliers International

502 offices in 67 countries on 6 continents

Submarket Reviews CBD Philadelphia

New Castle County, DE

The downtown market continued to strengthen with a decrease in vacancy from 10.7 to 9.8 percent in the first half of 2015. Absorption was just shy of 2014’s total for the year. Asking rents maintained a 3.0 percent quarterly growth rate.

The vacancy rate decreased from an adjusted 14.0 percent at the end of 2014 to 13.9 percent at the end of Q2 2015. The office inventory in Northern Delaware has been shrinking due to tear downs for redevelopment in both downtown and suburban Wilmington. Most recently, Buccini/Pollin committed to start demolition of five buildings at Concord Plaza, and pulled the buildings out of supply.

Vacancy improved by more than a percentage point to 13.9 percent. Over 726,000 square feet was absorbed, with Class B space accounting for over 50 percent of the occupancy gain. Previously under-performing submarkets — such as Horsham — rebounded. The Malvern/Exton submarket will undergo a major realignment with the delivery of new buildings for St. Gobain, IFM Efector, and Liberty Property Trust’s plan to raze multiple buildings in Great Valley Parkway for office and mixed-use developments. There are additional office buildings planned in submarkets such as Conshohocken, but these projects will likely require a significant lease commitment to kick off construction.

The vacancy rate in Southern New Jersey improved from 15.2 at the end of 2014 to 14.5 percent at the end of Q2 2015. Absorption was positive year-to-date, but there was an occupancy loss during the second quarter. Hill International moved from Mount Laurel to Philadelphia and Virtua Hospital leased 40,453 square feet in Mount Laurel, but left closer to 50,000 square feet in Marlton.

WORLD GREEN BUILDING COUNCIL

Suburban Wilmington is expected to continue to strengthen over the next two quarters while downtown Wilmington is likely to have continued vacancy fluctuations.

The vacancy rate in the Lehigh Valley increased from 10.9 percent at the end of 2014 to 11.3 percent at the end of Q2 2015 due in large part to the delivery of new speculative space at 3 City Center. The largest new deals were in former user-occupied buildings that were acquired by developers Patriot Equities and Jaindl Land.

UNITED STATES: Colliers International | Philadelphia Philadelphia, PA (headquarters) TEL +1 215 925 4600 Allentown, PA TEL +1 610 770 3600

Conshohocken, PA TEL +1 610 684 1850

Harrisburg, PA TEL +1 717 730 3752

Guardian Life’s new corporate office building is Wilmington, DE under construction. Neighborhood Improvement TEL +1 302 425 4000 Zone (NIZ) and City Revitalization and Improvement Mount Laurel, NJ Zone (CRIZ) incentives have increased entitlement TEL +1 856 234 9300 activity for new office buildings in Allentown and Bethlehem.

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Colliers International Ten Penn Center 1801 Market Street, Suite 550 Philadelphia, Pennsylvania, 19103 +1 215 925 4600 colliers.com/philadelphia | Office Market Outlook | Colliers International

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PPL spin-off Talen Energy is shopping the Lehigh Valley and northwest New Jersey for a new headquarters location.

Copyright © 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material containedNorth in this report. American Research & Forecast Report | Q4 2014

4

FOUNDING GLOBAL PARTNER

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Occupancy is anticipated to fluctuate as companies shift operations to more desirable locations or taxincentivized properties in Camden. Cooper University Hospital will be moving back-office space from Cherry Hill to Camden. The ownership mix continues to change. Brandywine Realty Trust is in the process of divesting New Jersey assets to redeploy capital to other markets.

Over 16,300 professionals

Occupancy was on the upswing in the suburban market, boosted by deals such as Wells Fargo’s lease (and naming rights) at 2200 Concord Pike. Absorption in downtown Wilmington rebounded during the second quarter, but this did not offset an occupancy loss during during the first quarter. This was due to space erosion in Class B buildings as tenants such as Met Life gave back space.

Lehigh Valley, PA Southern New Jersey



we r

Suburban Pennsylvania

1.7B square feet under management

pro d

Decreased occupancy at firms such as excellRX and Bank of New York Mellon was offset by companies expanding and new-to-market tenants such as the American Bible Society.

$2.3B in annual revenue

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