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.
o
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
pe
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
w in d
po
