Southeastern Pennsylvania Suburbs Begin the Year with a Bang

Philadelphia, PA (April 12, 2018) — Newmark Knight Frank (NKF) released its first-quarter 2018 office reports for the greater Philadelphia region. The reports detail bullish activity in Southeastern Pennsylvania and slowly improving market conditions in the Philadelphia Central Business District (CBD). Market fundamentals remain soft in the Southern New Jersey office market, while Delaware’s suburban office markets out performed Downtown Wilmington.

Southeastern Pennsylvania continued on a hot streak and recorded 479,334 square feet of positive absorption for the first quarter of 2017. This was 82.0 percent of 2017’s total absorption. Reid Blynn, NKF executive managing director, notes, “There are several tenants with large requirements looking in Southeastern Pennsylvania. It is possible that the market could gain 1.0 million square feet of new occupancy by year’s end.” Annual absorption for Southeastern Pennsylvania has averaged 583,383 square feet over the past five years.

Vacancy fell 50 basis points to 14.5 percent and was the lowest rate in over a decade. In the Blue Bell/Plymouth Meeting submarket, Cotiviti occupied 86,621 square feet at the recently renovated 785 Arbor Way. At 2501 Seaport Drive located in the Central/Southern Delaware submarket, Keystone Sports and Entertainment and PowerHome Remodeling occupied 23,000 square feet and 40,000 square feet, respectively. Over in the Radnor/Main Line market, Brandywine backfilled 40,000 square feet at Radnor Financial Center.

Southeastern Pennsylvania’s Class A rent increased by $0.19, from year-end 2017, to $30.00 per square foot. The Radnor/Main Line submarket concluded the first quarter with an average rent of $39.12 per square foot. It may be possible for Class A rent to break $40.00 per square foot somewhere in the suburbs before the end of the year. Finally, Class B rent grew by $0.23 to $24.59 per square foot, attributed to rent increases at Spring Mill Corporate Center and additional availability at Spring Mill Pavilion. Both properties are located in Conshohocken.

The CBD posted 107,812 square feet of negative absorption for the first quarter of 2018, mainly attributed to tenant activity at a small group of buildings in the West Market’s Class A sector. Downsizing and fewer tenants relocating from outside of the CBD market kept the vacancy at high levels for most of 2017. Some tenants that attributed to the vacancy include: 95,062 square feet formerly occupied by Comcast, at the Logan’s, was returned to the market, Deloitte “right-sizing” from 120,000 square feet to 90,000 square feet at 1700 Market Street, and Montgomery McCracken’s relocating from 120,000 square feet at 123 South Broad Street to 67,000 square feet at 1735 Market Street. As a result, Class A vacancy increased 40 basis points to 12.6 percent. However, NKF forecasts improved market conditions for the rest of the year. The new Comcast Tower will deliver in April and add 1.3 million square feet in positive absorption. NKF assisted Neumann Finance, a newly created equipment-leasing firm in partnership with Beneficial Bank, with a 21,695-square-foot lease at 123 South Broad Street. The company will occupy later this year. In addition, tenants from surrounding submarkets and Southern New Jersey are interested in securing outpost offices in the CBD.

All building classes experienced a bump in gross rent attributed to rising occupancy costs from the implementation of new real estate taxes. From year-end 2017, Class A asking rent increased $1.33 to $33.90 per square foot. Said Craig Scheuerle, NKF executive managing director, “Owners relatively new to the Philadelphia market, including Shorenstein, Coretrust and American Real Estate Partners, are increasing rents with major capital expenditures on lobby renovations and amenity/conference centers.”

Southern New Jersey market fundamentals remained soft at the close of the first quarter. Over the past three months, the average direct Class A rent fell $0.44 to $24.42 per square foot, while the Class B rate decreased by $0.11 to $19.95 per square foot. Quarter-over-quarter, the overall vacancy rate rose by 70 basis points to 14.7 percent. The market recorded 65,371 square feet of negative absorption. DeVry University closed its 14,731-square-foot location at 921 Haddonfield Road in Cherry Hill. Additionally, T&M Associates relocated from 19,000 square feet at 1256 North Church Street, in Moorestown, to 12,000 square feet at 200 Century Parkway, located in Mount Laurel. Anne Klein, NKF executive managing director, notes, “It will take some strong backfilling of space, as tenants occupy their new buildings in the city of Camden over the next 12-18 months, to maintain low vacancy levels.” While the largest new transaction executed in the first quarter was Corporate Synergy Group’s lease of 26,737 square feet at 2 Aquarium Drive, located in the Pennsauken/Camden submarket, most leases were by users under 10,000 square feet.

There was some good news from the investment front. Over the past year, typical purchasers of multi-tenant properties have shifted from REITS to local private investors. The market is now drawing interest from investors outside the region. One is a Texas-based private investor that has four office assets under contract and the other is from a Massachusetts healthcare REIT focused on two Marlton office properties.

In the first quarter, the Wilmington CBD posted 10,436 square feet in negative absorption, while the suburbs recorded 71,663 square feet in occupancy gains. Sallie Mae’s move to 57,576 square feet at 90 Christiana Road in Wilmington South was the main reason for the suburbs positive absorption. Vacancy in the CBD increased for the second consecutive quarter to 17.8 percent. The Wilmington South and Wilmington West submarkets reported quarterly declines of 120 basis points and 60 basis points, respectively, to 10.9 percent and 18.9 percent. There were minor upticks in Class A and Class B rental rates for the CBD. However, the Wilmington North market recorded a $0.49 uptick due to 500,000 square feet, formerly owned by AstraZeneca, which was returned to the market at 1800 Concord Plaza.

Neal Dangello, NKF senior managing director, noted, “The city’s higher operating costs, such as parking, employment and wage taxes, make it less desirable for tenants. Expect to see more back-office operations shifted out of the city.” This could further weaken conditions in downtown, which may contend with more than 500,000 square feet returned to the market if Bank of America’s Bracebridge office buildings are purchased by an investor and added to the inventory.

About Newmark Knight Frank
Newmark Knight Frank (“NKF”), operated by Newmark Group, Inc. (“Newmark”), is one of the world’s leading commercial real estate advisory firms. Newmark has over 4,600 employees in over 120 offices. Together with London-based partner Knight Frank and independently-owned offices, NKF’s 15,000 professionals operate from more than 400 offices in established and emerging property markets on six continents. With roots dating back to 1929, NKF’s strong foundation makes it one of the most trusted names in commercial real estate. We offer a complete suite of services and products for both owners and occupiers across the entire commercial real estate industry.

Our investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting and, under trademarks and names like Berkeley Point and NKF Capital Markets, government sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Our occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. We enhance these services and products through innovative real estate technology solutions and data analytics designed to enable our clients to increase their efficiency and profits by optimizing their real estate portfolio. We have relationships with many of the world’s largest commercial property owners, real estate developers and investors, as well as Fortune 500 and Forbes Global 2000 companies. For further information, visit

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