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PHILADELPHIA-Office market activity in the CBD produced mixed signals duringthe first quarter of this year, according to research from the local officeof Trammell Crow Co. During a “noticeable lull,” the overall vacancy raterose slightly to 13.7%, impacted by rising unemployment and the consequentaddition of sublease space. The amount of leasing activity in first quarterwas just half the activity in fourth quarter 2002.

Though current demand is weak, reports Bill Luff, SVP ofthe TCC office here, “rental rates are up for class-A product and down fortrophy product.” Although vacancy in the trophy building sector has notfluctuated much, he predicts it will as some tenants shift from trophy toclass-A space.

The average asking rental rate in the class-A office sector inched up to$22.17 per sf, compared with $22.09 per sf at year-end 2002. Luff notes,”this is still significantly less than the $23.11-per-sf rate at this timelast year.”

“Trophy class rates are in flux,” he says. “Landlords are negotiatingearlier with existing tenants. The impact has been seen in the form of lower rentsand increased incentives.”

Asking average rental rates for class-B office buildings is $16 per sf,unchanged since fourth-quarter 2002. Vacancy is up in the sector as tenantstake advantage of the reduced rates in class-A product.

The major deals in the CBD are the looming 2004-2005 expirations that havebeen in the market since the end of last year. Owners and brokers are urgingcompanies to make commitments, but, understandably, they’re taking theirtime.

Ken Zirk, VP, and Craig Worton, an associate at Trammell Crow,participated with Luff in the research.

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