PHILADELPHIA-San Francisco-based Shorenstein Co. handed over leasing of Two Liberty Place to a team from the local office of CB Richard Ellis. Two thirds, or about 800,000 sf, of the 57-story, 1.2-million-sf trophy at 1601 Chestnut Street will be vacant in first-quarter 2006.

This year prime tenant Cigna Corp. decided to maintain its headquarters in the building, but downsize from about 633,000 sf to just over 440,000 sf. At the same time, Ace Ltd., which acquired Cigna during Cigna’s tenure in the building and occupied approximately half of the property under a master lease, is relocating to a building it acquired at 463 Walnut St.

This occurs during a period off ascending vacancies in the CBD office market. A third-quarter report from the local office of Cushman & Wakefield puts the overall vacancy rate at 17.6%, “the highest level since 1995,” before factoring in the looming Two Liberty Place vacancy. Approximately 25% of Brandywine’s Cira Centre tower, now under construction, has also yet to be leased. It, too, will be in the competitive fray, which could be exacerbated even further by any decision to move forward with construction of One Pennsylvania Plaza, the tower Malvern, PA-based Liberty Property Trust hopes to develop for Comcast, which would take just half of the initially projected more than one million sf.

Andrew Rudzinski, director of research and marketing in CBRE’s office here, says the Philadelphia CBD anticipates “the possibility of a tremendous spike in vacancy in the upcoming 24 months pending a decision to build One Pennsylvania Plaza.” In his third-quarter 2004 report, he also refers to “large blocks of contiguous space…coming online during the 2005 cycle” as a result of tenant downsizing. Nevertheless, reports from CBRE, C&W and others indicate that asking rental rates for class A properties in the West of Broad Street submarket remain stabile at between $24 per sf and $27 per sf, although all acknowledge that effective rates are well below that level. Cigna’s downsized renewal, for example, was widely reported to be for a rate that was lower than its previous rate.

George Cauffman, Joseph Wolff, and Mitch Marcus head the CBRE leasing team at Two Liberty Place, and they are marketing the property regionally and nationally. None of them could be reached for comment by deadline.

Two Liberty Place is part of the two-building complex that includes the nearly identical One Liberty Place office tower, a Westin Hotel, and 144,000 sf of ground-floor retail. The building has been fully occupied since its completion by Liberty in 1990.

Shorenstein acquired Two Liberty Place in June 2002 for just over $200 million, according to a report at the time. William Elder, Shorenstein’s SVP of leasing, says his company is in the process of modernizing the building’s lobby.

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