PHILADELPHIA-While hardly positive, third-quarter local office market data suggests “the market is turning the corner towards recovery,” says J. Robert Clements, executive vice president and managing director of the Philadelphia office of Grubb & Ellis. Overall vacancy remained steady 15.7%, and “sublease space gained only 78,000 sf since the end of last quarter. This is a small increase after rising precipitously in each of the last four quarters and indicates that sublease availability has slowed,” Clements says.

The vacancy rated in the CBD continued to increase “at a marginal pace,” he says, “indicating that a vacancy peak has either arrived or is close at hand. Vacancy rates actually started to decline in several submarkets, including the entire East Market and class-B space in the Independence Square Market. Surprisingly,” he adds, “this is the first time since 1999 that class-A1 space has seen its vacancy rate turn downward.”

Asking rental rates dropped $0.11 per sf in the overall suburban market, however effective rates were lower due to concessions. The overall CBD full-service rental rate is $23.74 per sf, which Clements says “is probably 5% to 10% above the effective rate. Tenants still have the upper hand.”

Class-A office buildings in the local office market saw more than 770,000 sf of positive absorption this year to date, a mirror image of class-B properties, which had 750,000-sf of negative absorption, an indication that tenants are moving up to better space, rather than a sign of expansions or new companies entering the market.

“The best year-end result will probably be that the market finds its bottom,” Clements concludes.

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