PHILADELPHIA-Both the CBD and suburban Philadelphia office markets are projected to remain flat through 2007, according to a proprietary model created by the local office of Jones Lang LaSalle. It calls for a small increase in rental rate growth in the CBD and a small decline of rates in the suburbs over the same period.

“The model refers to asking rental rates, versus effective rates,” W. Whitney Hunter, VP and regional director of leasing for JLL here, tells GlobeSt.com. “In the CBD, we see asking rate growth of about 1% per year. In effective rates, however, we see a tightening in the market.” The model includes the impact of three new office towers in Center City: Cira Centre, which Hunter expects to come on line in January 2006; Liberty Property Trust’s One Pennsylvania Plaza as headquarters for Comcast, and an additional, smaller office building for the Towers Perrin law firm.

Hunter notes that Liberty’s decision to go forward with One Penn Plaza is “in limbo, awaiting resolution of the KIOZ (tax break) controversy. One way or the other,” he adds, “for the typical Philadelphia deal of 20,000 sf, there won’t be much impact.”

At the end of this year’s second quarter, the Downtown office vacancy, including sublease space, stood at about 13.5%, up from 13% at the end of 2003, but down from 14.1% at the end of 2002, according to JLL data. Meanwhile, the suburban vacancy rate as of June this year was almost 23.8%, just slightly up from the previous year, but up significantly from the already-high 19.2% at the end of 2002.

The JLL model projects declines in vacancy rates for both markets over the next three years, primarily because overall construction is on hold through 2005. JLL sees a vacancy rate of 12.1% in the CBD in 2007, and a corresponding 16%-vacancy in the suburbs within three years.

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