Commercial property in King of Prussia remains buoyant in a turbulent market. While the Philadelphia-area commercial vacancy rate lingers near a 20-year low, Adrian Ponsen, Director of Market Analytics for CoStar’s Philly region, points out that new leasing has dropped significantly during the pandemic.
“..Philadelphia’s new leasing volume is currently severely depressed. Even as nonessential business closures eased in the mid-summer months, the square footage of new leases signed was still down almost 70% compared to seasonal averages during the previous three years.
…Life sciences firms have proven the exception to the rule and continue to expand. WuXi Biologics’ decision in May to lease 33,000 SF at MLP Venture’s ongoing redevelopment of the former GlaxoSmithKline Upper Merion campus into the Discovery Labs was a win for the suburbs.” CoStar’s Philadelphia – PA Office Market Report, 10-20-2020
King of Prussia is poised to take advantage of this opportunity as companies will be more selective when looking for new space to expand, especially bio-pharma companies needing state-of-the-art lab space.
Renovated spaces and extracted office space from Discovery Labs R&D flex inventory increased the amount of available Class A commercial office in King of Prussia by 387,555 SF. This increase in available supply and several building class adjustments in commercial office properties that we monitor explain the 5.3-point increase in vacancy rate from last quarter to 14.7%. The vacancy rate for office properties previously monitored by King of Prussia District over previous quarters only increased by 1.5 points to 10.9%. Class A space accounts for 70% of the commercial office inventory in King of Prussia and Class A vacancy rate is at 14.9%. Despite an increase in office supply, CoStar reports an increase in the average aggregate lease rate by $4.46 to $32.81 PSF with a corresponding increase in the average Class A lease rate to $37.88 PSF.
Class B office space remained steady with a 12.6% vacancy rate and an average lease rate of $22.49 PSF while Class C office space fluctuated dramatically by more than 17 points due to very low inventory. Class C space finished Q3 with a 23.7% vacancy rate with the bulk of available space coming from one property. The average lease rate for Class C space remained steady at $26.07 PSF.
Inventory for Flex and Industrial space remained the same as previous quarters but vacancy rates continue to lower in both categories. Flex space dropped by less than a point to 18.8% vacancy rate while Industrial space continued to outperform with a 0.2% vacancy rate. The average lease rate for Flex space increased by more than $4.00 from the previous quarter to $33.68/NNN, an all-time high. Industrial space remained the same as last quarter with an average lease rate of $9.11/NNN.
Written by Eric T. Goldstein, Executive Director, King of Prussia District