Vacancy is still near record highs in the western suburbs, he concedes. But he points to Cephalon's commitment for 192,000 sf in Frazer, PA; Shire Pharmaceutical's lease of an entire building in Wayne, and Barr Labs' lease for 40,000 sf in Bala Cynwyd. "The Philadelphia Region continues to expand its presence of pharmaceutical firms as approximately 80% of the world's pharmaceutical companies are based in the Philadelphia area," Guerrieri says.

Nevertheless the office vacancy rate in suburban Philadelphia rose to 22.7% in the first quarter of this year, compared with 22.3% in the final quarter of last year. Despite this slight rise in the vacancy rate, the average asking rental rate for class A office space in the suburbs rose to $27.26 per sf, up from an average of $26.75 in fourth quarter 2003. Meanwhile, the Keystone Opportunity Zone controversy continued to loom throughout the CBD office market during the first quarter as owners of existing buildings protested construction of new office projects and the new building developers justified KOZ designations for their projects. Furthermore, as decision time nears for a number of major Downtown tenants with leases up for renewal, competition continues to intensify. According to Guerrieri, office building owners are dropping their asking rates significantly as more vacancies loom on the horizon.

The CBD office vacancy rate rose to 13.3% in first quarter, according to G&E data, up from 12.8% in the previous quarter. The average asking rental rate for class A office space in the CBD dropped to $24.46 per sf in this year's first quarter, down from $25.04 per sf in the final quarter of 2003.