Newmark Knight Frank Smith Mack Releases Second Quarter 2010 Office Market Trends
Wayne, PA (July 6, 2010): The Greater Philadelphia region’s mid-year 2010 year-to-date reported a negative net absorption of <780,852> square feet, with 80 percent of this occurring in Q2 2010. When compared to year-end 2009’s negative net absorption of <3,499,581> square feet, the overall market is showing a more favorable trend thus far in 2010. The market is still soft, however mid-year leasing activity has shown signs of improvement, with rental rates continuing their descent from $22.44 at the close of 2009 to $21.05 in the second quarter of 2010.
Philadelphia CBD
Philadelphia Central Business District (CBD) office market ended the first half of 2010 with an overall increase in negative net absorption in the second quarter of <120,100> square feet, up from last quarter’s negative net absorption of <50,500> square feet. This brings year-to-date absorption to a negative <170,700> square feet. Looking back on the first half of 2010’s activity, the Philadelphia CBD, although showing negative net absorption in both quarters, is still experiencing a dramatic improvement compared to year-end 2009, when the fourth quarter reported a negative net absorption of <434,600> square feet and year-to-date was negative <1,451,400> square
feet.
Market Street West closed the second quarter at 14.5% total vacancy, which is only .3% higher than that of Q1 2010. Class AA office space continues to improve, reporting positive Q2 2010 absorption of 45,300 square feet and total vacancy of 8.8%, down from Q1 2010’s 9.2%. Much of this sublease activity happened at the Cira Centre, as well as One and Two Liberty Place. Class A total vacancy crept up a bit to 18.7%, compared to last quarters 18%, while Class B remained flat quarter-over-quarter.
Market Street East finished the second quarter with minor negative net absorption of <2,200> square feet and a flat total vacancy rate of 12.4%, an improvement over first quarter’s negative net absorption of <38,700>, and a significant improvement when you compare it to the negative net absorption of <223,700> square feet reported for 2Q 2009. Asking rental rates decreased slightly to $24.67, compared to last quarter’s $24.86. Notable activity within the Market Street East submarket is the Philadelphia Bar Institute leasing 24,414 square feet at The Wanamaker Building.
The Chestnut / Walnut Streets submarket dipped into a negative net absorption of <45,800> square feet, compared to Q1 2010’s positive net absorption of 11,800 square feet, with the negative net absorption occurring completely in the Class B office market. The two most significant contributors to the vacancies were 34,624 square feet at 1500 Walnut Street and 25,252 square feet at 1608 Walnut Street. Rental rates in the Chestnut / Walnut submarket remained flat over the past three quarters.
When measuring mid-year 2010 numbers against the same period in 2009, it is evident that the pace of new availabilities has slowed dramatically, and stronger leasing activity is anticipated within the Philadelphia CBD office market for the balance of the year.
Suburban Philadelphia
The Philadelphia Suburban office market vacancy rates continue to show a mixed performance at mid-year 2010, which is consistent with the last few quarters. Overall the Philadelphia suburbs reported a Q2 2010 negative absorption of <133,600> square feet, which is consistent when compared to Q1 2010’s negative <121,800>, and Q2 2009’s <89,500>. Although 2010 year-to-date absorption is negative <255,500> it continues to be a significant improvement over the last two quarters of 2009 when combined negative absorption was <1,403,000>.
Submarkets showing the healthiest positive net absorption were Delaware County with 116,000 square feet, Jenkintown / Huntington Valley with 43,900 square feet and North Penn with 37,300 square feet. The Main Line, Central Bucks and Jenkintown / Huntington Valley reported the lowest vacancy rates with the Main Line and Central Bucks reporting 15.1%, and Jenkintown/Huntington Valley reporting 15.9%. North Penn, Lower Bucks County, Fort Washington and Plymouth Meeting are reporting the highest vacancy percentages within the suburban office markets, ranging from 23.3% up to 38.1%. Overall rental rates continue their gradual descent reporting $21.75 compared to Q1 2010’s $21.86 and mid-year 2009’s rental rate of $22.09.
As we take a closer look at the suburban submarkets individually, Delaware County is showing signs of a slow, yet steady path to recovery with improved net absorption for the third straight quarter in a row, reporting a positive 116,000 square feet in the second quarter 2010 bringing the mid-year net absorption up to 141,000. This positive absorption was primarily reported at The Wharf at Riverton in Chester with 60,200 square feet and International Plaza in Tinicum with 42,500 square feet where Regus Executive Office Group leased 13,000 square feet at One Plaza and the Iron Workers District Council leased 7,000 square feet, plus two tenant expansions at Two Plaza. Total vacancy rate of 22.9% for the Delaware County submarket is down by 2.4% from Q1 2009’s 25.3%.
Fort Washington is another suburban submarket that has reported 2010 positive year-to-date absorption in excess of 100,000 square feet, i.e. 134,400. This consists mostly of positive net absorption of 129,400 square feet in the first quarter and a marginal second quarter gain of 5,000 square feet. Although the total vacancy rates in the Fort Washington submarket remain on the higher end of the Suburban Philadelphia submarkets the positive absorption thus far has reduced the total vacancy rate from 32.4% at Q 4 2009 to 27.7% at mid-year 2010. Rental Rates are down slightly from $20.24 in second quarter 2009 to $20.03 in second quarter 2010.
Central Bucks is the third submarket that had an overall favorable first half of 2010 with a year-to-date positive net absorption of 105,600, compared to year-end 2009’s year-to-date negative net absorption of <82,500> square feet. Q2 2010 reported a total vacancy rate of 15.1% compared to year-end 2009’s 17.6%. The average rental rate dropped 3% from Q4 2009’s reported rate of $21.27 to $20.55 at the close of Q2 2010.
Also showing signs of recovery is Jenkintown/Huntington Valley, with a positive net absorption of 43,900 square feet reported at the close of Q2 2010 versus a negative net absorption of <24,300> in Q1 2010. 2Q 2010 total vacancy rates are down, at 15.9% – only one of three submarkets reporting less than 16% total vacancy rates. Rental rates on the other hand continue to decline, dropping by $0.52 per square feet when comparing year-end 2009 to mid-year 2010, which may be a factor in the increase in leasing activity.
The North Penn submarket achieved a positive net absorption of 37,300 square feet in Q2 2010, compared to Q1 2010’s negative net absorption of <51,000> Total vacancy rates are the highest of the suburban submarkets at 38.1%, however signs of improvement are evident when compared to Q1 2010’s 42.1%. Keeping with the trend of most submarkets within the suburbs, rental rates continue to decrease. Q2 2010 reports a rental rate of $20.62, compared to Q1 2010’s $20.94, however Q2 2010’s rental rate is still $0.22 higher than what was reported at the close of 2009.
Malvern/Exton/West Chester continues in the negative net absorption arena for the sixth consecutive quarter. Q2 2010 reports a negative net absorption of <85,200> square feet compared to Q1 2010’s negative net absorption of <171,200> and Q4 2009’s negative net absorption of <22,900>. As a result, total vacancy rates continue to rise, i.e. Q2 2010’s total vacancy rate of 20.6%, compared to Q1 2010’s 19.3%, Q4 2009’s 16.6% and Q2 2009’s 10.5%. Despite the overall increasing vacancy, positive leasing activity has occurred, such as Microsoft leasing 21,894 square feet at 45 Liberty Boulevard, NAVTEQ leasing 45,566 square feet at 1000 N. Cedar Hollow Road, and Benten Bio Services Inc. leasing 35,194 square feet at 335 & 395 Phoenixville Pike. It is interesting to note that while overall vacancies have nearly doubled in the past 12 months, rental rates remain relatively stable, and actually increased over the first quarter 2010 by $0.10 per square foot to $20.25.
The Radnor/Conshohocken submarket showed negative leasing activity in the second quarter 2010, primarily due to a few large blocks of space that came back onto the market in Conshohocken....16,357 at Six Tower Bridge, 46,841 at Quaker Park, and 26,566 at the Spring Mill Corporate Center. There was a mixed bag of smaller transactions under 10,000 square feet that helped offset these new vacancies. Net absorption for Q2 2010 is a negative <41,500> square feet, compared to Q1 2010’s positive 18,200. The total vacancy is 18.7% in Q2 2010 versus 18% at the close of 2009’s fourth quarter.
The King of Prussia / Wayne submarket reported marginal change between quarters with overall Q2 2010 negative net absorption of <10,300> square feet, compared to Q1 2010’s negative net absorption of <7,200> square feet, which translates to total vacancy remaining relatively flat, with a slight increase of .1% quarter-to-quarter, however the second quarter results between building classes was significant. Although the overall change was slight, the Class A category reported negative net absorption quarter-over-quarter of <109,100> square feet. Highview at Providence, located at 400 Campus Drive contributed 78,564 square feet of office space to the negative absorption. Class B, on the other hand, witnessed positive quarter net absorption of 19,700 square feet, as did single story with a positive 79,100 square feet. In addition, the positive absorption continues to be in the sublet vacancy category with 129,400 square feet, offset entirely by a direct vacancy negative absorption of <139,600> square feet. Rental rates are beginning to show signs of stabilization...$21.99 as reported in Q2 2010 versus $21.92 at the close of the first quarter 2010. Larger recent leasing activity includes Hav Pak moving into 10,952 square feet at 791 5th Avenue, and Ametek signing a lease for 43,480 square feet at 11,000 Cassatt Avenue, with the move-in date projected for February 2011.
Lower Bucks, has continued to report increased vacancy rates for the past seven quarters for a cumulative negative absorption of <436,500> square feet. Q2 2010’s total vacancy rate is 23.3%, up from Q4 2009’s 20.6% and Q2 2009’s 19.9%. In the second quarter there is a negative net absorption of <26,500>, compared to Q1 2010’s negative net absorption of <103,800>, with asking rental rates continuing to decline, to $18.41 from $18.47 in Q1 2010. On a positive note, single story activity posted a positive net absorption of 15,900 square feet over first quarter 2010.
Plymouth Meeting/Blue Bell’s negative net absorption of <133,200> square feet in the second quarter over first quarter 2010’s <5,500> was driven by Fed Ex’s move out of 719 Dresher Road (35,212 square feet), the downsizing of PPD at 9880 Harvest Road, Advanta leaving 700 Business Center Drive due to dissolution, and Aetna vacating 920 Harvest Road, among others. Q2 2010 total vacancy rate of 26.8% is up from 22.3% at mid-year 2009 and 24.9% at year-end 2009. Despite the increasing vacancy rate, asking rental rates for the Plymouth Meeting / Blue Bell submarket continued to increase over the past four quarters with $21.57 at the close of 2009, and $21.91 in the second quarter 2010.
Northern Delaware
The Northern Delaware office market returned to overall negative absorption in Q2 2010 as a direct result of the addition of new vacancy from previous owner/occupied properties that are now being marketed to third party occupants, as further explained below. Without the addition of the new building vacancy the overall Delaware market reported positive net absorption of 78,000 square feet. The mid-year 2010 total vacancy rate of the Wilmington CBD, New Castle County North, West and South (the four submarkets tracked) reports 19.7%, compared to Q1 2010’s 19.8%. Overall rental rates decreased from Q1 2010’s reported asking rate of $20.47 to $19.97 in Q2 2010.
Wilmington CBD Class A direct vacancy rate as of the second quarter 2010 remained in the low 20’s, i.e. 21.2%,, which continues to be significantly higher than the direct vacancy rate of 14.4% for the same time last year. The current quarter negative absorption of <260,900> square feet is exclusively due to the Brace Bridge buildings owned and occupied by Bank of America that are now being marketing to outside parties. Of the four buildings added to the market, only Building II is currently reporting 242,000 square feet available. Other availabilities from these buildings may follow in future quarters. CBD Class B direct vacancy rates have been in the mid 20’s for over a year and has reached a high of 27.5% at Q2 2010. A strong indicator of soft leasing market is the average rental rate for Class A direct which declined by $6.16 compared to the same time last year as asking rates dropped from $25.16 at mid-year 2009 to $19 at Q2 2010.
Overall New Castle County (North, West and South) reported positive absorption in Q2 2010 of 97,400 square feet, which actually reflects a net effect of negative absorption in North and West Counties, offset by 173,000+ square feet of positive absorption in South County.
New Castle County (NCC) North experienced an overall negative net absorption of <70,500> square feet, compared to Q1 2010’s negative <54,200> square feet, with the majority of the negative absorption continuing to happen in the Class A category - <66,900> square feet. Q2 2010 reported a total vacancy rate of 20.1% compared to 18% at the close of 2009. Asking rental rates continue their descent over the past year starting out at $21.90 at 2Q 2009 and ending up at $20.64 at second quarter 2010. NCC North has experienced increasing vacancy rates over the past six quarters.
New Castle County West is the only Delaware submarket that continues to report single digit vacancy rates with Q2 2010 at 6.6%, 5.3% at year-end 2009 and 5.9% at this time last year. Class A has reported negative absorption in both Q2 and Q1 2010 at <20,400> square feet and <36,600> square feet, respectively. Class B, however, has been more stable with 2010 year-to-date positive absorption of 14,400 square feet. Rates remain relatively stable in NCC West with only a variance of $0.29 year-over-year.
New Castle County South has shown significant rebounding in both first and second quarters of 2010. Class A direct has strong Q2 2010 positive net absorption of 113,700 square feet, although the total vacancy rate remains in the low-twenties at 23.2%. This is down from 26.4% at Q1 2010, yet higher than the 22.1% at mid-year 2009. Class B direct has also shown a healthy positive net absorption of 60,100 square feet in Q2 2010. NCC South sublease space has become a larger component of vacancy space since this time last year, increasing from 24% to 35% of the total vacant space available. Most recently is the new sublease space in the Iron Hill Corporate Center’s Red and Blue Wings. Overall rental rates are at $18.83, a $1.19 decrease since Q1 2010. The year-to-date activity in this submarket is by far the strongest, but whether the market will manage to sustain the pace of leasing activity remains to be seen.
Southern New Jersey
The Southern New Jersey office market continues to see a steady increase in direct vacancy from 17.5% at the close of 2009, to 18% in Q1 2010, and then to 19.6% at the close of 2Q 2010. In addition, absorption swung significantly from positive 6,700 square feet in Q1 2010 to negative <206,500> square feet in Q2 2010. Rental rates decreased dramatically in the Southern New Jersey office market from $21.02 at the close of Q1 2010 to $17.70 in Q2 2010. This however is due to the fact that certain landlords are now quoting triple net rental rates rather than full service rates, whereby causing a false variance.
The Camden submarket experienced negative net absorption of <90,500> square feet at the close of Q2 2010, compared to a positive net absorption of 54,678 in Q1 2010. Several large blocks of office space over 10,000 square feet, primarily in Class B, contributed to the additional vacancies....12,000 square feet at 2250 Chapel Avenue W., 10,198 square feet at Cherry Hill Plaza, 15,506 square feet at 2 Executive Campus, 28,648 square feet at 111 Woodcrest Road and 21,991 square feet at 51 Haddonfield Road, which was due to Nations Mortgage moving out. Two sizeable new vacancies are also reported in the single-story category: 41,822 square feet at 6 E. Clementon Road, due to Virtua moving out, and 29,000 square feet at 400 Laurel Oak Road.
The 3M submarket reported a negative net absorption of <116,000> square feet at the close of Q2 2010, compared to Q1 2010’s negative net absorption of <48,000>, a reverse trend for 2010 thus far when you compare those numbers to Q4 2009’s positive 253,000 square feet. The most significant new Class A vacancy is 52,784 square feet at 232 Strawbridge Drive in Moorestown. Additional vacancies occurred in Class B office space, with the largest block being 66,867 square feet becoming available at 4000 Midlantic Drive
Mid-year 2010 is closing out with constant reminders of the challenges that are still looming, and while we don’t assume increased vacancies in the third quarter, we are also cautious about predicting a rebound until a few more quarters of stabilization occur.
Newmark Knight Frank Smith Mack Represents Rodin Market Partners LP in Several Lease Transactions Totaling Over 30,000 SF
Philadelphia, PA - March 22, 2010: Newmark Knight Frank Smith Mack is pleased to announce the completion of several lease transactions at Rodin Place located at 2000 Hamilton Street in Philadelphia – Rittenhouse Eye Associates, Inc., signed a long-term lease for 7,800 SF, Communities in Schools, Inc., renewed and expanded into a total of 20,974 SF, and Fairmount Pediatrics and Adolescent Medicine PLC signed a new lease for 1,300 SF.
Les Haggett, Director of Newmark Smith Mack said, “We are pleased to welcome Rittenhouse Eye Associates and Fairmount Pediatrics as new tenants of Rodin Place, and are overjoyed to retain the existing tenants, who will continue to be an integral part of our community.”
Aptly named, Rodin Place is just steps away from the world-famous Rodin Museum on the Benjamin Franklin Parkway. Situated in the center of a tree-lined upscale neighborhood of high-rise apartments and established townhome properties, Rodin Place is conveniently located within walking distance from Center City, the Logan Square office district, the Philadelphia Free Library, five museums and two colleges.
This distinctive, mixed-use property recently underwent a $2 million renovation, which included beautifully landscaped walkways, arcade level shopping, and a vaulted two-story marble-lined lobby. Rodin Place’s many attributes such as: high ceilings, on-site parking, unlimited local amenities including Philadelphia Sports Club, on-site daycare, on-site drycleaner, Starbucks and many more make it a perfect fit for any local business desiring office or retail space in Philadelphia.
The principals of the property have a long history of successful real estate development experience. Their diverse real estate background includes new development of hotel and condominium properties as well as re-development of existing office, industrial and residential buildings.
Sheldon Stein, Managing Partner of Ranger Properties, the asset management firm of Rodin Market said, “We are extremely pleased to accommodate the organic growth of our existing tenant’s as we continue to add high quality companies to Rodin’s community.”
Les Haggett, Director of Newmark Knight Frank Smith Mack represented the landlord Rodin Market Partners, LP in the above mentioned lease transactions. Sidney V. Smith, Jr. and Brendan Leahy of Newmark Knight Frank Smith Mack represented the tenant Communities in Schools, Chris Datz of Pitznick Brown represented Rittenhouse Eye and Keith Kiner of Perna Frederick represented Fairmount Pediatrics.
Newmark Knight Frank Smith Mack announces the expansion of Research Pharmaceutical Services into 21,350 SF In Fort Washington, PA
Wayne, PA - January 13, 2010: Newmark Knight Frank Smith Mack (NKFSM) is pleased to announce the expansion of ReSearch Pharmaceutical Services, Inc. (RPS) into 21,350 square feet at 500 Virginia Drive in Fort Washington, Pennsylvania.
“RPS required immediate space for approximately 100 employees to service a new contract. Newmark Knight Frank Smith Mack was able to locate a block of space within a close proximity to their corporate headquarters that was large enough to accommodate their employees,” said Bill Finnegan, Senior Director of Newmark Knight Frank Smith Mack. “Both the landlord and tenant worked diligently to complete this transaction within 60 days of inspection. RPS is one of the few companies in Fort Washington currently experiencing rapid growth. We were able to negotiate a very attractive rental rate as well as rent concessions that added long term value to their real estate strategy.”
ReSearch Pharmaceutical Services, Inc. offers integrated clinical development solutions and enhanced full service solutions that raise the bar with respect to increasing the quality and speed of drug, device and diagnostics development, enabling new life-changing therapeutics to reach the market better, faster and less expensively. RPS is dedicated to providing the biopharmaceutical industry with an alternative to traditional outsourcing models by offering customized, integrated solutions that address the fundamental industry challenges.
Bill Finnegan, Justin Bell & Neil Shupak of Newmark Knight Frank Smith Mack represented the tenant ReSearch Pharmaceutical Services, Inc. Jerry McGarry also of NKFSM provided project management services to RPS.
Contact:
Marlene K. Sahms
Director, Marketing Communications and Research
(610) 265-0600
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Newmark Knight Frank Smith Mack Announces Several Renewals/Expansions and New Deals at 1818 Market Street In Philadelphia, PA
Philadelphia, PA - February 8, 2010: Newmark Knight Frank Smith Mack is pleased to announce several renewals/expansions and new leases within 1818 Market Street. Zarwin Baum Devito Kaplan Schaer Toddy PC signed a new lease for 24,378 SF; Stevens & Lee, P.C. renewed and expanded into a total of 18,099 SF; Pietragallo Gordon Alfano Bosick & Raspanti renewed 16,412 SF; Kogan, Trichon & Wertheimer, P.C. renewed 10,691 SF; Michael Baker Jr., Inc. renewed and expanded into 5,728 SF; Firstrust Financial Resources, LLC signed a new lease for 5,632 and IDP Education, LLC signed a 4,937 SF new lease, for a total of 85,877 SF within the 1818 Market Street business community.
“We welcome Zarwin Baum and IDP Education to our 1818 Business Community and are ecstatic to retain the existing tenants, who have renewed their leases and will continue to be an integral part of our community,” says Jim Mullarkey, Partner of Newmark Knight Frank Smith Mack.
Home to many of Philadelphia’s top corporate tenants, 1818 Market Street boasts a prime center city location with extensive tenant amenities and stunning renovations that have ranked it among the city’s leading office buildings. The 37-story Class ‘A’ office tower’s central location is enhanced by superb views of the city and beyond.
“We are delighted with the continued commitment of these exceptional companies to 1818 Market Street. They are the heartbeat of our property. They help to make our business community the vital and productive place it is today,” says Mike Waddell, Senior Vice President, Asset Management of Grubb & Ellis Realty Investors, LLC.
Jim Mullarkey, Bill Finnegan and Les Haggett of Newmark Knight Frank Smith Mack’s Philadelphia office represented Grubb & Ellis Realty Investors, LLC, owner sponsor of the property, as the exclusive leasing agent of 1818 Market Street.
Contact:
Marlene K. Sahms
Director, Marketing Communications and Research
(610) 265-0600
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Newmark Knight Frank Smith Mack Releases 2009 Year-End Office Market Trends
WAYNE, PA – December 31, 2009: Newmark Knight Frank Smith Mack is pleased to announce the release of its 2009 year-end office market trends for the Greater Philadelphia region. Trends for each market and submarket are researched and authored by Newmark Knight Frank Smith Mack brokers specializing in their particular area, and serve as the basis for the formal Year-End Market Trends, due to be published in January 2010. This report provides a current analysis of the four core commercial office markets within the Greater Philadelphia region – Philadelphia Central Business District (CBD), Suburban Philadelphia, Northern Delaware and Southern New Jersey.
The 2009 office market for the Greater Philadelphia region has continued to descend in the fourth quarter bringing the year-to-date cumulative negative net absorption to 3.5 million square feet. This compares to the end of 2008 when we were showing a positive net absorption of 1.4 million square feet. Although 2008 ended in positive territory, it should be noted that the slide into negative net absorption began in the fourth quarter of 2008 when negative absorption was 765,000 square feet for the four markets combined. The downward trend paused in the first quarter of 2009 when office space remained even, but then continued downward for the second, third, and fourth quarters. It is clearly based on this trend that the recession has directly impacted the commercial real estate industry in our region. As we close out 2009, we are cautiously optimistic that 2010 will bring us a ray of hope and that leasing activity will gain momentum as the economy shows small signs of recovery.
Total vacancies for the Greater Philadelphia region, including sublease space, jumped to 23.1 million square feet, or 18.0%, at the close of 2009 compared to 19.5 million square feet, or 15.3%, at the close of 2008. The fourth quarter results delivered a substantial negative absorption of 691,000 square feet, with three of the four core markets posting negative quarterly net absorption…Southern New Jersey being the exception. While this is a significant number, it is approximately 65% less than the 1.965 million square feet of negative absorption reported at the end of the third quarter, an indicator that the decline in occupancy is slowing. Another market indicator is the published average asking rental rates which decreased year-on-year to $22.44 at the end of 2009 compared to $22.76 at the end of 2008. Although this decrease seems minimal, research indicates that transactions are being done at rates even lower than those reported.
Philadelphia CBD
The Philadelphia Central Business District (CBD) office market is a prime example of the current effects of the weak economy, with direct vacancy remaining in the double digits for the second straight quarter at 11.2%. This is substantially higher than year-end 2008, when direct vacancy was in the single digits at 8.7%. Overall vacancy at the end of 2009, including sublet space, is at 13.9%, compared to 10.4% at the close of 2008. Direct space accounted for 70% of the increased vacancy, with sublet space contributing 30%. The overall asking rental rate decreased in the CBD at year-end 2009 to $24.74, compared to Q4 2008’s rental rate of $25.32.
Market Street West ended the year with 14.1% total vacancy, which is 2.4 percentage points higher than Q4 2008. While class AA space is still the lowest at 8.4% total vacancy, it is still 2 percentage points higher than it was a year ago. The Market West net absorption for the fourth quarter 2009 ended with a negative 218,000 square feet which is consistent with the prior two quarters that reported negative 360,000 square feet and 175,000 square feet for the second and third quarters, respectively. Contributing to the fourth quarter negative net absorption was a sizable sublease of 220,000 square feet coming into the market from Sunoco at 1735 Market Street and Beacon One Insurance vacating 72,000 square feet at 1500 Spring Garden Street. AIG is also continuing their space reduction by vacating 33,000 square feet at 1601 Cherry Street.
Even though a drop in leasing activity was apparent in the CBD during the last half of 2009, there were still transactions being completed. The most notable was Wolters Kluwer, who will be moving out of 510-530 Walnut Street in the Market Street East submarket and into the Market Street West submarket, leasing 75,000 square feet at 2 Commerce Square. Family Planning, DMJM and Klehr Harrison moved out of the Chestnut / Walnut submarket leaving behind 155,000 square feet at 260 South Broad Street and moved into the Market Street West submarket…Klehr Harrison leased 78,000 square feet at 1835 Market Street, and Family Planning and DMJM leased a total of 78,000 square feet at 1700 Market Street.
Philadelphia Suburbs
The Philadelphia Suburban office market also has all indicators that the recession has reached this market as well. Overall, the total vacancy, including sublet space, at the end of 2009 increased to 21.0%, which is much higher than the 17.8% posted at the close of 2008. Direct and sublease space contributed fairly evenly to the increase in total space available at 54% and 47%, respectively. The fourth quarter 2009 closed with an overall negative net absorption of 371,000 square feet compared to Q4 2008’s negative net absorption of 511,000 square feet and the year’s high at Q3 2009 negative absorption of 1.1 million square feet. Direct vacancy is ending the year at 17.6% which has increased when compared to Q4 2008’s 15.9%. The average asking rental rate for the suburban markets decreased to $21.80 at the end of 2009 compared to $22.27 at year-end 2008.
The Malvern/Exton/West Chester submarket increased considerably with 16.6% total vacancy at the end of 2009, nearly doubling 2008’s year-end number of 8.9%; a year-to-date negative net absorption of approximately 499,000 square feet, compared to Q4 2008’s positive year-to-date net absorption of 302,000 square feet. Within this submarket is the Uptown Worthington development which is facing serious economic challenges due to the recession. This project has plans to include 490,000 square feet of class A office space within the project’s overall two million square feet of mixed-use product.
The good news this quarter comes from Horsham…the only submarket within suburban Philadelphia to report a year-to-date positive net absorption. The Horsham submarket reported a significant decline in vacancy between years, decreasing the total vacancy rate by 6.6 percentage points – 17.9% at the close of 2009, compared to 24.5% year-end 2008. Horsham reports a year-to-date positive net absorption of over 245,000 square feet, most of which was due to first quarter activity with the balance of 2009 holding steady.
The King of Prussia / Wayne submarket reported 4Q 2009 negative net absorption of 226,000 square feet primarily due to Wyeth vacating 105,000 square feet at 200 Campus Drive. The year-to-date negative absorption of 363,000 square feet is a result of fluctuating absorption between quarters throughout the year.
The North Penn submarket reported the highest total vacancy for the Philadelphia Suburban market at 33.0% at the close of 2009, which is somewhat comparable to the 34.5% reported for year-end 2008. The Fort Washington submarket saw a huge increase in total vacancy between years increasing from 17.2% at the close of 2008, to 32.4% at the close of 2009. The Plymouth Meeting/Blue Bell, Delaware County and Lower Bucks County submarkets also ended 2009 with total vacancy rates between 20% and 25%.
Unfortunately, there aren’t too many sizable transactions to report in the Philadelphia Suburban real estate market overall for 4Q 2009, but given the effects of the economic slowdown, we will celebrate the transactions that were made... BioClinica moved into 36,000 square feet at 800 Adams Avenue in King of Prussia, Gwynedd Mercy leased 39,000 square feet at 480 E. Germantown Pike in the Plymouth Meeting submarket, 100 Matsonford Road leased 33,000 square feet in the Conshohocken/Radnor submarket, and 39,000 square feet was leased at 100 Tournament in Horsham.
Northern Delaware
The Northern Delaware office market has been holding its own during the recession even though the demand for office space is down and transactions are taking much longer to complete. The four submarkets tracked include the Wilmington CBD, New Castle County North, West and South. The overall vacancy closed out 2009 at 17.3%, whereas in 2008 it was 17.6%; a nominal change but one that brings with it cautious optimism. Year-to-date net absorption closed out on a positive note…positive net absorption of 23,000 square feet. Keeping with the global trend, rental rates have decreased from $22.58 in Q4 2008 to $22.26 at the close of the fourth quarter 2009.
The Wilmington CBD office market finished out the year with a negative net absorption of 49,000 square feet. When compared to 2008’s year-to-date positive net absorption of 279,000 square feet – you will see that the economic slowdown gathered momentum in the Wilmington CBD office market however the market has faired relatively well compared to its regional counterparts.
New Castle County North, South, and West all appear to be moving in the right direction, as it relates to the commercial real estate industry. New Castle County North ends the year with a 17.9% direct vacancy rate, compared to Q4 2008’s 18.3%. North’s year-to-date positive net absorption is 38,000 square feet compared to 2008’s year-to-date positive net absorption of 15,000 square feet. New Castle County South’s Q4 2009’s direct vacancy rate is 21.8%, compared to year-end 2008’s 23.0%, with a year-to-date positive net absorption of 10,000 square feet, compared to Q4 2008’s negative 283,000 square feet. Last but certainly not least, New Castle County West ends 2009 with a direct vacancy rate of 5.2%, compared to 5.7% at the close of 2008. West also reports a positive year-to-date net absorption of 23,000 square feet, compared to 2008’s year-end year-to-date positive net absorption of 29,000 square feet. Consistent with the majority of the region, rental rates have also fallen throughout New Castle County.
Overall the Northern Delaware market ended 2009 on a somewhat optimistic note.
Southern New Jersey
The Southern New Jersey office market saw an increase of 2.4% in total vacancy, including sublet, closing at 18.9% for 2009 in comparison to the end of 2008, which reported 16.5%. Despite a year-to-date negative net absorption of 292,000 square feet, Southern New Jersey closed out the fourth quarter with a positive net absorption of 166,000 square feet, brought on by several significant deals; Continuum Health Alliance moving into 53,000 square feet at 402 & 404 Lippincott Drive in Marlton; American water moving their executive offices to 330 Fellowship Road and occupying 26,000 square feet and Fox Rehabilitation purchasing a 42,000 square feet building at 7 Carnegie Boulevard in Cherry Hill and occupying 20,000 square feet, just to name a few.
The Camden County submarket saw a jump in overall total vacancy, including sublease, space from 17.5% in 2008 to 22% to close out 2009.
The 3M submarket also saw an increase in total vacancy, including sublease, from 15.9% in 2008 to 16.9% at year-end 2009. Positive net absorption for the fourth quarter 2009 reached 253,000 square feet, compared to Q4 2008’s positive net absorption of 14,000 square feet. The 3M market reported a year-to-date negative net absorption in 2009 of 57,000 square feet, compared to the 101,000 positive net absorption reported at the close of 2008. Looking back through the past four quarters, it is clear that Southern New Jersey is following the same path as the rest of the region during this economic slowdown.
The Greater Philadelphia region is ending the year in a time when businesses are cautiously optimistic about what 2010 will bring. Most have experienced the recession first hand, with the reduction of workforce, office space and many other cost cutting exercises to help weather the economic storm. There are varying opinions on what 2010 will hold for the region’s commercial office market. Landlords are focusing on the sound business strategies to position themselves to capitalize on the value and opportunities that are yet to come as the market begins to shift and tenants are taking advantage of the opportunities currently available in reduced long-term rental rates, whereby ultimately reducing operating expenses for years to come.
Contact:
Marlene K. Sahms
Director, Marketing Communications and Research
(610) 265-0600
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