Instead of a vacancy rate approaching 20%, as was feared with the opening of Cira Centre and the start of construction of Comcast Center, Grubb now expects the vacancy rate to fall to 12% or below this year. It dropped from 16% at year-end 2004 to 13.7% at the end of 2005.

Among the reasons for this turn of fortune are Comcast's expanded commitment to an aggregate of at least 873,000 sf in the 1.2-million-sf tower under development by Liberty Property Trust and the virtual full lease-up of Brandywine's Cira Centre at its year-end 2005 opening. Other reasons include new small-space tenants plus the expansion of several local law offices. In addition, three buildings exited the office sector for conversion to residential condos.

Several class A properties still have significant vacancies, however. Among those with vacant chunks are One and Two Liberty Place and Ten Penn Center. GlobeSt.com, among others, carried reports--neither confirmed nor denied by owner Americas Capital Partners--that a portion of Two Liberty place may be converted to residential condos.

As a result of the vacancies, the Grubb report says, "CBD landlords will remain fairly aggressive on their concession packages with free rent and substantial tenant improvement allowances." The "staggering increase" in construction costs, which have risen by 10% to 15% in a year, has also increased TI costs, which the report says, "will keep the pressure on landlords to offer large allowances, thereby reducing bottom-line performance."

Nevertheless, "looking forward, 2006 should continue the previous year's growth trend with the possibility of rent increases and/or diminishing concessions from a number of well-occupied owners," Fisher concluded. The current average asking rent rate among all building classes in the priciest West Market submarket is $25.55 per sf, according to Grubb data. The least costly rate averages $19.91 per sf in the Chestnut/Walnut corridor. The degree to which Center City's residential renaissance will impact the office sector remains to be seen, but also contributes to increased optimism.