GlobeSt.com EXCLUSIVE: Office Market Here Bucks Absorption Trend

In analyzing the statistics, Bob Walters, managing director of CBRE's Philadelphia region, tells GlobeSt.com, that the "Philadelphia market always lags, either in a downturn or a recovery. We're not a leading indicator, but we'll recover at a slower pace."

He cited "rumors that Comcast will absorb more space in Comcast Center," as evidence of his predictions just minutes before Comcast announced its expansion from 44% to 70% of the building scheduled for completion in 2007. In a statement announcing the Comcast expansion, David Binswanger, president and CEO of Binswanger, who negotiated for Comcast, said "this should alleviate many of the concerns regarding the amount of excess space that was due to come on the market."

The Comcast expansion comes on the heels of news that Citizen's Bank inked a long-term lease for a 2,600-sf branch in Cira Centre, Philadelphia's other new office tower, due to come on line at the end of this year with in excess of 90% of its 694,000 sf of office space pre-leased.

Walters says, "While it's preliminary to suggest that Rohm & Haas may absorb space Downtown, that is among the unknowns lingering in the market. Neither do we know what mergers and acquisitions lie ahead to alter the office landscape." He notes that despite "some significant downsizing in the CBD, which will continue to have a negative effect on vacancy short-term, owners have done a good job of managing that space," suggesting that reworking vacant space opens the possibility of larger-space deals longer-term.

"We've had some positive absorption in the suburbs," he adds, "which is a good sign. I predict we'll do better here than the negative naysayers who believe the worst is yet to come." He says that typically, when we see the rest of the country experiences positive absorption, Philadelphia follows. "I predict we'll start to see positive absorption, lower vacancy and small rent growth."

During second quarter, Downtown saw negative net absorption of 429,630 sf, according to the research, which resulted in bringing the overall region's vacancy rate to 15.4%. Acknowledging that is one of the highest vacancy increases in the nation for the quarter, Walters said, "a 0.7% rate change is minimal and doesn't significantly affect the market."

Vacancy rates for Downtown are almost 12.6%, versus 11.2% in the same quarter a year ago. The vacancy rate in the suburbs in second quarter was 19.6% compared with 20.2% in second-quarter 2004, according to the research. The average asking rental rates for class A office space in the suburbs and Downtown are $23.80 per sf and $20.87 per sf, respectively.