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A recently released report indicates that Philadelphia's strength in the office market will enable it to withstand the economic downturn caused by the coronavirus pandemic.
According to data released last week by Newmark Knight Frank, Philadelphia's central business district continued to perform well in the first quarter, with 137K SF of positive absorption as new tenants such as Mindspace entered the market. The coworking operator leased 42K SF in the Wanamaker, the site of the former flagship store of the long-defunct Wanamaker's Department Store.
Philadelphia's life sciences boom continues to boost the city's office market. Wexford Science & Technology and Venta broke ground on their $280M One Ucity Square development in January. The speculative property, which is being developed in conjunction with the University City Sciences Center, has pre-leasing commitments from Century Therapeutics and Integral Molecular.
"When the economy re-opens, firms in expensive gateway markets may look closer at Philadelphia as a talent-rich, affordable office market option for operational diversification or relocation," NKF Managing Director Matt Guerrieri said in a press release.
The picture in Philadephia's suburbs is mixed. According to NKF, the vacancy rate in the western suburbs rose 14.7% in the first quarter, its highest level since 2017. The real estate advisory firm attributes the pullback to "significant retractions and limited new occupancies," such as Israel-based Teva Pharmaceuticals moving its U.S. headquarters to New Jersey, vacating a 120K SF building at 425 Privet Lane in Horsham, Pennsylvania.
Hibu/Yellow Book downsized its footprint at 2201 Renaissance Boulevard in King of Prussia by 60K SF. SEI and Main Line Health vacated a combined 90K SF at 52 East Swedesford Road in Malvern, and Brandywine Realty sold the property for $18M to Tripoint Properties. In total, the market had negative absorption of 395K SF.
Both South Jersey and Delaware saw gains in net absorption rates in the first quarter. Jefferson Health and Camden County leased a combined 92K SF at 101 Woodcrest in Cherry Hill, New Jersey, a property formerly occupied by American Water. South Jersey absorbed 52K SF in office space during the quarter, while Wilmington, Delaware, gained 400K SF, its most significant increase in more than a decade, NKF found. Christiana Care Health System and Solenis' "significant occupancies" at Avenue North, a redevelopment of AstraZeneca's former campus in the Wilmington suburbs, drove the gains, according to the company.
Marlette Funding's lease of a 60K SF build-to-suit at The Concord, BPG Group's mixed-use reimagining of the former Concord Plaza, was among the development and redevelopment announcements made in the quarter.
CORRECTION, April 15, 9 A.M. ET: The story has been corrected to show that the vacancy rate in the Philadelphia suburbs is the lowest it has been since 2017, not 1997.
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