Philadelphia Office Market

Peter C. Soens, principal,
Seligsohn Soens Hess/TCN Worldwide

Currently, the office market in Philadelphia continues to show marked improvement, especially in Center City Philadelphia. The increased residential population, the decreased supply of Class B and C office buildings and the expansion of private and public sector businesses, especially universities and hospitals, will mean an increase in rental rates and a possible increase in construction for Philadelphia in 2007.

Office vacancy rates were sitting at 10.17 percent at the start of 2007 and are forecasted to be under 9 percent by the end of the year. In Philadelphia’s Central Business District (CBD), rental rates range from an average of $26 per square foot for Class A space to $22 per square foot for Class B space. There was approximately 800,000 square feet of positive absorption in 2006 in the Philadelphia CBD and another 1 million square feet of positive absorption is forecasted for 2007.

Construction continues on the 1.2 million-square-foot Comcast Center, which is currently 80 percent leased and is expected to be fully leased upon completion in early 2008. In addition, the Convention Center is undergoing an expansion that will double the amount of floor space, making it the largest convention center on the East Coast. The expansion will also be the catalyst for the construction of several new hotels in the area. Office development is not only occurring in Philadelphia’s CBD, but in select suburban markets such as Plymouth Meeting, Central and Lower Bucks County and King of Prussia due to  improved fundamentals and a lack of large blocks of available space.

Taking note of the current office potential in Philadelphia, several new investors have stepped into the Philadelphia marketplace. CommerzLeasing and Immobilien AG recently purchased 1.25 million square feet in the Comcast Center from Liberty Property Trust for $505 million. Behringer Harvard recently acquired Three Parkway, a 20-story, 561,351-square-foot Class A office tower located at 1601-1645 Cherry Street in the heart of Philadelphia. Sterling American Property and Greenville Partners purchased the 27-story, 667,825-square-foot Ten Penn Center for approximately $75 million and are currently renovating the building to attract new tenants.

Office activity continues to flourish across all submarkets. For example, in the West of Broad submarket, there were five buildings with more than 300,000 square feet of contiguous space available in 2005, but by the end of 2006 there was only one large block of space available at Ten Penn Center. The South Broad submarket is showing an office vacancy rate of only 5 percent, continually outperforming all other submarkets. In the East of Broad submarket, Jefferson University Hospital and Pennsylvania Hospital continue to absorb available office space.

In the future, investors should keep their eye on the University City submarket. The continued growth of the University of Pennsylvania and the Children’s Hospital has made office space a hot commodity in this area. The Market East submarket in the Philadelphia CBD is also a great place for more activity in the future due to the expanded Convention Center, new hotel projects and a continued improvement of retail.

The future looks bright for Philadelphia, as the office market should continue to grow based on expansions taking place in the education, medical and hospitality sectors.

— Peter C. Soens is a principal of Seligsohn Soens Hess/TCN Worldwide

©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.

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