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PHILADELPHIA-For the eighth consecutive quarter the central business district’s office market posted gains, according to fourth-quarter 2006 reports from three area brokerage firms. This marks a complete reversal of year-ago predictions that vacancy would rise and rental rates would slide.

The opposite has occurred, David Jarjisian, senior vice president of the local office of CB Richard Ellis, tells GlobeSt.com. “We’re approaching the lowest vacancy rate since 2000.” He predicts, “the vacancy rate will drop another 2% to below 10% this year and average rent rates will rise about $2 per sf, more in some cases.”

Jarjisian attributes much of the progress to a thriving University City, where the office vacancy is 1% and new buildings have a rental rate of $32 per sf. “University City is the new frontier,” he says, noting, “600,000 sf of Center City office space was absorbed by companies moving in from University City.” That is one, but not the only contributor to the CBD market’s success, say others.

“The Philadelphia CBD submarket, defying the expectations of some, has handled the additional two million sf of new office space introduced to the market in the past year,” says Tim Pulte, executive managing director of GVA Smith Mack, referring to Cira Centre and Comcast Center. “Additionally, CBD has seen a relative surge in investment activity as nine Center City office buildings have changed hands during the year, including one, 1760 Market St., which traded twice in the span of two months.”

According to Pulte, “average asking rents in the trophy class increased nearly $0.50 (per sf) year over year to $26.75.” He attributes the increase primarily to delivery of Cira Centre and preleasing at Comcast Center, scheduled to deliver this September.

Vacancy dropped 1.5% in the final quarter of 2006 to end the year at 10.2%, according to Matthew Wright, research services manager in the local office of Grubb & Ellis. The West Market submarket, which is the priciest in Center City, led the overall market, according to Grubb data. It put the average asking rent rate at class A buildings there at $26.65 by year-end 2006, compared with an overall CBD, class A average of $25.85 per sf.

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