MARKET HIGHLIGHT, SEPTEMBER 2008

PHILADELPHIA MARKET HIGHLIGHTS

Office Market

Philadelphia’s CBD Still Strong

Center City Philadelphia’s central business district continues to evolve, with demand for office, hotel and residential properties showing tremendous resiliency. The trend of converting office buildings to hotels and residential uses continues as owners study the highest and best uses for their properties.  Use conversions have been frequent over the past 10 years, during which both large and small Class C office buildings have been converted to hotel or multi-family condominium projects.  Due to demand for luxury condominiums in Center City, numerous new residential developments have recently been delivered, including: Residences at the Ritz (244 units), The Symphony House (163 units), The Murano (302 units), Ten Rittenhouse (140 units), Arts Condominium at 13th and Locust Streets (372 units).

The office market also remains extremely healthy due to a number of factors: strong demand, the conversion of old office properties to alternative uses, and limited new supply. Demand for space remains strong, demonstrated by a healthy 640,000 square feet of positive absorption through the first half of 2008.  Vacancy rates remain historically low; consequently, landlords are raising rents and reducing concessions. 

Only two new office towers have been constructed in Center City Philadelphia in the past 17 years.  Liberty Property Trust and Brandywine Realty Trust, the largest office owners in the Philadelphia Metro area, have been the only developers to deliver high rise office projects. Both developments required substantial tax incentives and pre-leasing by anchor tenants. Brandywine delivered the Cira Center (28 stories, 732,000 square feet) at 30th Street Station in West Philadelphia, which attracted two existing Philadelphia law firms to anchor the project. The development was pioneering in terms of its location, and controversial due to the tax incentives provided by KOIZ legislation (which grants major tax breaks to companies and employees on the site).

Liberty Property Trust completed the gleaming Comcast Center at 17th and JFK Boulevard (1.25 million square feet), concluding years of planning and negotiating with its anchor tenant, Comcast. Tax incentives were also required to successfully launch this project. The landmark tower is the tallest building between New York City and Chicago — boasting 58 floors, 36 elevators and topping off at 975 feet.  The tower quickly became a tourist attraction and its opening spurred the reopening of the western areas of the concourse in Suburban Station while, connecting One Logan, Two Logan Square and Bell Atlantic Towers with the prestigious West Market Street area.

— Todd Monahan is a senior vice president of SSH Real Estate/TCN Worldwide.

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