Philly Office Rents Hit Record Highs Amid Vacancy Increase
Downtown Philadelphia's office market showed impressive leasing activity in the fourth quarter, but it was not enough to translate to positive net absorption.
According to a report by CBRE, Philadelphia's central business district recorded negative 324K SF of net absorption in Q4, despite significant new leases from Jefferson, Comcast and the First Judicial District of Pennsylvania.
Part of the cause of the absorption issue is the continuing densification of space by office users. The continuously shrinking requirements of office tenants coincides with the large amount of space set to either deliver as new or become available in 2018.
Philly's suburbs saw positive absorption in Q4, and helped drive the region's rent growth, along with new deliveries at the top of the market in the CBD. The Philadelphia region saw its highest average asking rent in recorded history in the quarter at $27.28/SF. Certain submarkets in the suburbs like the Main Line have become so expensive that some tenants like JG Wentworth and The Hartford have relocated to cheaper-but-popular King of Prussia.
The first quarter should see more major leases completed to keep absorption numbers reasonable in the CBD, according to JLL. Over the course of the year, new deliveries like the first phase of Schuylkill Yards will test that absorption, with most of the pressure likely to be exerted on older Class-A buildings, yet to be renovated and losing tenants to newer construction.