The commercial market in Philadelphia mirrors many national trends so far in 2016. Development has been very active in the Center City, University City, and Philadelphia Navy Yard districts, encompassing office, industrial, and retail properties.
In the office sector, there were 3,345,280 square feet under construction at the end of the first quarter. The largest project underway, at more than 1.3 million square feet is the Comcast Innovation and Technology Center. This facility is already 100% preleased.
Rates for CBD leasing remain strong. Overall, Class B rates averaged $20.27 and Class A rates were hovering at $26.40. The average quoted rate for office space in all classes was $22.06, while those in the central business district were at $28.45. Overall absorption for office space in the city’s office market was negative (245,455 square feet) for the quarter.
Out of town and international investors represent a bigger share of commercial activity in Philadelphia than in previous decades, and this trend is continuing. As in other major U.S. cities, the central business district leads the way in the commercial marketplace, commanding higher rates than other locales. Paul R. Levy of Center City Philadelphia wrote that 74% of the CBD office space that changed hands in 2015 went to out of town buyers.
While demand continues to be high for industrial space, the addition of 5.7 million square feet of space in 2015 may be having a bit of a cooling effect on industrial construction as we move further into 2016.
Here’s a look at just a few of the deals that have been developing in Q1 2016. They reflect the continued growth in the hotel market, the influence of tech companies on the workplace, and the increasing draw of the city center for visitors and entertainment.
The $164 million renovation of the Sugarhouse Casino on Delaware Ave. in Fishtown is complete. First started nearly 2 years ago, the project increased the Casino’s size by 150,000 square feet and added a parking garage.
While anchor vacancies in many retail centers have been an impediment to rent growth, there are multiple large-scale retail developments underway in the city.
The largest retail development underway in the city is Market East, which will occupy center city space near the Convention Center, between Market and Chestnut, between 11th and 12th. Streets. Begun in 2014, the mixed-use space will appeal to the millennials’ preference for a live/work/play lifestyle. It will include a residential tower as well as a range of shops and restaurants. It’s expected to include more than 800,000 square feet of office and retail space, with the first phase complete by the end of this year.
The Hyatt Place King of Prussia hotel was recently acquired for $13 million by a partnership consisting of Fort Lauderdale, Fla.-based Wurzak Hotel Group and the real estate investment firm DoveHill.
The new owners will shortly embark on a $1.2 million upgrade effort on the hotel. This will include improvements to the hotel lobby, guest rooms, bar and fitness center.
In another interesting deal, CBRE recently announced plans to the Liberty Title and Trust building on N. Broad St. into a hotel. This is just one of about a dozen major hotel projects in the works for the city center.
An important national trend in the workplace is the rise of co-working as an attractive alternative to working from home or signing a long-term lease. The Yard, a co-working provider from New York, is expanding into Philadelphia, joining We Work and other co-working firms that are popping up around the city, especially in the CBD.
The Yard will occupy 24,000 square feet at the Steele building at 15 S. 11th St. The area, known as the Midtown Village, is becoming a center for tech companies in the city.
Illustrating another major trend in workplace use and design, The Yard will have use of the property’s 1,650-square-foot rooftop deck.
Tech and Office Space
Nationally, tech companies are driving demand for office space in the urban centers, and Philadelphia’s market has many examples of this.
In the CBD, Mellon Bank Center will be the site for the new headquarters of Carpenter Technology Corp. It is anticipated that 100 people will be working from the new corporate offices, which will occupy approximately 22,000 square feet in the office tower at 1735 Market St.