It’s that time again. JLL has released quarterly stats, and we’re sure you’re wondering what was new in Q2.
In the CBD:
- The summer slowdown: CBD office leasing remains somewhat slow, with averages slightly lower than in previous years. With no major renovations or relocations, leasing activity has remained steady with Q1 levels.
- Rising Rents: Due to Class A office demand, rent averages increased 1.8 percent over the past quarter. The average rent price for a Class A office building stands at $30.39 per square foot, despite select submarkets experiencing a dip. Our verdict? Rents will continue flatten, though not recede entirely.
- Falling Absorption: A drop in absorption didn’t come as much of a surprise; on its own, the Children’s Hospital of Philadelphia’s relocation of over 225,000 square feet opened up a large lower-cost block close to the University City Science Center.
So where does that leave us? Renovated Class A buildings have a shot with a wave of large tenants whose leases are set to expire by 2020.
Looking Forward: The market is becoming more favorable for tenants as large occupiers give back floors and leasing levels hold flat. Quality and amenities will continue to drive the market, as evidence by 1735 Market, the Independence Collection, and creative assets like The Bailey Building.
The questions on our minds for the next 12-18 months is whether the CBD’s dynamism is strong enough to attract more gateway offices and large tenant relocations.
Meanwhile, in the suburbs:
- A turnaround: Flat leasing activity has continued across the market for the first half of 2017, but a few notable tenant moves mean the suburbs enter the second half of the year with strong fundamentals. In King of Prussia/Wayne, Vertex expanded to 2301 Renaissance, and Dell Boomi outgrew its space at Berwyn Park and moved to 1400 Liberty Ridge.
- The Happy Medium: Tenants seeking the ideal suburban location along with amenities that can compete with the stylish urban environment.
- Talent drives the trends: The common theme among all of these transactions is that suburban tenants require well-located, high quality offices to attract talent. King of Prussia, for example, offers that with its proximity to new residential and retail hotspots.
The proximity to new residential and retail hotspots are a major draw for new office spaces, and as seen in areas such as King of Prussia, rent averages are rising as the demand for Class A office space grows. The average rent for Class A office space this quarter is $29.22 per square foot, driving the overall market rate up 1.6 percent.
Looking Forward: As we move into the next quarter, total vacancy is down to 13.8 percent, which is reflective of increasing demand in key suburban areas. Submarkets like King of Prussia/Wayne, Plymouth Meeting/Blue Bell, and Fort Washington are well-positioned to take advantage of the urban planning within a suburban setting that owners are craving. With a total of 369,614 square feet currently under construction and an uptick in owner-user purchases in the first half of 2017, don’t expect the drive for suburban real estate to subside anytime soon.