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PHILADELPHIA-Demand for office space in the greater Philadelphia CBD improved in third quarter, according to a market report by the local office of New York-based Trammell Crow Co, with 87,788 sf of positive absorption. It was the first positive absorption in five quarters.

Year-to-date activity, however, remains negative. The overall vacancy rate dipped slightly to 13.45%, down from 13.73% in second quarter. However, it is still 2 percentage points higher than it was in third quarter 2001. On the plus side, there was a 260,000-sf reduction of sublease space in third quarter this year.

Activity in Market Street East during third quarter 2002 was more than 30% greater than in the Market Street West submarket.

“For the first time the market is witnessing a number of tenants move from or considering moving from the `trophy’ product to solid class-A space,” says Bill Luff, senior vice president of the local office of Trammell Crow. This will tighten the existing wide gap in rental rates between trophy and class-A properties, he says, with tenants electing more cost-effective opportunities.

The average class-A rental rate is $22.86 per sf, an increase of $0.20 per sf in comparison with the second quarter of this year. Average rates in class-B office properties are $17.55 per sf, a decrease since second quarter.

Ken Zirk, vice president, and Craig Worton, associate, at the local Trammell Crow office participated with Luff in the research report.

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