We are happy to present the full Q2 2019 commercial real estate report. Due to discrepancies with the numbers between the beginning of the year and previous quarters, we skipped reporting the vacancy rates for the first quarter. Now that we have fixed the glitch in our reporting process, we can once again report on, what we believe to be, more accurate vacancy rates as reported by CoStar.
The King of Prussia commercial market remains strong through all classes of commercial office and industrial/flex space. The vacancy rate for the combined office classes have dropped significantly, while the average lease rate PSF continues to rise. Class A vacancy at the end of Q2 is 11.7%. The average lease rate has risen significantly to $31.83.
The Class B vacancy rate dropped over 10 points since Q2 2014 to 15.0% in 2019, while the average lease rate has increased to $24.04. The biggest drop in vacancy rate to date in 2019 remains in Class C from 21.0% in Q2 2014 to 1.7% in the last quarter. The average lease rate has leveled out at $17.12 PSF. The combined classes of office space have dropped over 6 points to 12.2%, while the average lease rate PSF has climbed to $27.36 PSF.
As discussed in our spotlight segment on Discovery Labs, the addition of lab space available in an incubator setting at the former GSK site on Swedeland Road has increased the inventory for flex space. The addition of nearly 450,000 SF to the market has increased the vacancy rate to 18.4%. The vacancy rate for Industrial has reached an all-time low of 0.2%, the lowest recorded rate since the collection of KOP industrial properties were added to the CoStar database in 1997. The average lease rate for Industrial space at $7.81/NNN is the highest it has been since Q2 2002.
Eric T. Goldstein
King of Prussia District