As a result, movement between classes of product is becoming prevalent as rates in the class A and trophy properties slide. According to fourth-quarter data from the local office of TCC, class A rates are quoted to be $22.22 per sf, but deal terms continue to benefit tenants. Landlord concessions, including generous build-outs, free rent, buyouts of remaining lease terms, and moving and design allowances, remain a large part of the inducement package to relocate tenants.

Meanwhile, "renewals and early `recast' transactions continue to be a major focus, allowing tenants with expirations as far out as 2006 to re-write the lease deals now," say TCC analysts, who expect tenants to take this opportunity to reduce the above-market rents they are currently paying.

The report also refers to the impact of Keystone Opportunity Improvement Zones, which give tenants tax relief and other financial inducements for up to 15 years. This combines with current conditions to also make relocating an "opportunistic attraction."

Direct vacancy in the overall CBD stood at 8.8% at the end of fourth quarter 2003. However, it stood at 10.3% in the Market East submarket, where the average rate for class A properties was $21.52 per sf, and at 8.1% in the adjacent Market West submarket, where $22.93 per sf is the average rate.

In all, 2003 office leasing activity in Center City reached slightly more than 1.5 million sf. Most of that, a little better than 1.1 million sf, took place in Market Street West.

Bill Luff, SVP; Ken Zirk,VP, and Craig Worton, associate in TCC's Philadelphia office, participated in assembling and analyzing the fourth-quarter and year-end 2003 data.