Daniel Moller, Stockton Real Estate Advisors
Austin Weinerman, Stockton Real Estate Advisors
Accessibility, amenities and coworking spaces are driving the suburban and urban real estate markets in Philadelphia. While suburban office tenants prefer to have access to transit and amenities, Center City office tenants seek experiences and collaboration with new coworkers.
Suburban Perspective
The Philadelphia suburban market consists of 59.4 million square feet comprising 13 distinct submarkets. The majority of this inventory consists of dated commodity office space, mostly built prior to 1990. With an overall vacancy rate of 20.8 percent and average asking rents of $24.90 per square foot, the Philadelphia suburban market has been less dynamic than its Center City counterpart. Although many older properties suffer from functional obsolescence, well-maintained assets with access to major roadways/public transit and amenities outperform the market average.
For example, the Radnor, Conshohocken and Bala Cynwyd submarkets remain the three strongest submarkets in the region. Vacancy rates in these markets range from 2 to 14 percent, with average asking rents ranging from $30.75 to $37.00 per square foot. All three of these submarkets have immediate access to major roadways, public transit and amenities.
Suburban office developers have taken note of the strong fundamentals in these areas as well as Center City Philadelphia. They have created projects directed towards providing high-quality amenities for their tenants. For example, the Plymouth Meeting/Blue Bell submarket — consisting of 5.7 million square feet, with a current vacancy rate of 20 percent and average asking rents of $24.23 per square foot — has managed to lease 390,000 square feet of space in one project alone. This project, Arborcrest Corporate Campus, was a recent redevelopment of Unisys’ former corporate headquarters. By offering modern, renovated common areas and high quality on-site amenities, Arborcrest achieved a unique niche in the market and surpassed its competition. Other examples include CrossPoint at Valley Forge, a 270,000-square-foot redevelopment in the King of Prussia submarket, a 16 million-square-foot submarket that has experienced vacancy rates in excess of 20 percent over the last several quarters. CrossPoint has leased 220,000 square feet since being introduced to the market early 2013.
As we look to the future, suburban office tenants should prepare for an amenity-rich, easily accessible transformation into an “urban suburban lifestyle” as development/redevelopment projects look to replicate the most successful submarkets and projects in the Philadelphia suburbs.
Center City Perspective
The Philadelphia CBD market consists of 46 million square feet of space mainly comprising Class A inventory. The CBD has experienced a total year-to-date net absorption of 367,311 square feet with a total vacancy rate of 12 percent and asking rents between $23 and $37 per square foot. Although conventional tenants still dominate leasing velocity, collaborative “hubs” or “coworking spaces” are changing the landscape for entrepreneurs and startups within Center City.
Coworking spaces are growing in popularity throughout the CBD. These are spaces where entrepreneurs and proprietors gain access to one another and can engage in business and social discussions to promote their businesses. Coworking environments help create a sense of community and camaraderie amongst like-minded workers of different backgrounds. The energy and productivity in these spaces, as a result of coworking, is difficult to quantify. However, it is apparent that the coworking model is revolutionizing the way business is conducted in Philadelphia.
Notable coworking spaces in Philadelphia include Pipeline, Indy Hall, Benjamin’s Desk and City CoHo, to name a few. The city has been identified as a mecca for coworking spaces as demonstrated by the arrival of UberOffices out of Washington, D.C., and coworking space giant WeWork of Soho, New York. UberOffices is currently in the market for 15,000 to 20,000 square feet while WeWork is seeking 50,000 to 60,000 square feet of open space as well. With an increase in hubs and coworking spaces in Philadelphia, it is clear that collaborative work space is here to stay.
— By Daniel Moller, Senior Associate, and Austin Weinerman, Senior Associate, of Stockton Real Estate Advisors, LLC. This article first appeared in the August/September 2014 issue of Northeast Real Estate Business magazine.