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Office Market Shows Even Further Tightening

Philadelphia Office

Class-A office demand is tightening in the CBD, Cushman & Wakefield senior analyst Jared Jacobs tells us. Vacancy has dropped to 11.8%, nearly one full percent year over year, with a trophy rate of 6.1%, the lowest since '09. Although residential conversions have removed office product, and no new construction had occurred since pre-recession, two new buildings now breaking ground—the FMC Tower and Comcast Innovation & Technology Center—will bring over 2.3M SF onto the market. East of Broad is also getting busy, with three significant purchases in the past year, showing a pronounced effort to reno older buildings—the biggest being planned for Keystone Property and Mack-Cali’s purchase of the 886k SF Curtis Center. While 90k SF of it will go residential, the remainder will stay as offices.

Leasing activity in the suburban markets is on par with the CBD’s, about 1.7M SF this year, and rents are up 2.2% YOY, with less construction breaking ground and more redevelopment of existing product, Jared says. Saint-Gobain’s 320k SF lease at 20 Moores Rd in Malvern remains the big deal of the year. The building will undergo an $80M redesign (rendered by Bernardon Haber Holloway Architects) with LEED certification as the company consolidates its 800 employees from two offices, with plans for a fall 2015 opening. On the horizon, Jared says the Conshohocken submarket could be heating up. Keystone’s proposal for One Conshohocken, a 300k SF office property that would also include a 200-room hotel, may be a sign of reinvestment in this transit-oriented borough.