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PHILADELPHIA-Office occupancy in the CBD reached an all-time high last quarter with large blocks of available office space expected to remain scarce this year. Occupancy reached 35 million sf in 2007, according to Grubb & Ellis’ fourth quarter market report. Market experts are predicting record absorption and increasing rents for 2008.

The fourth quarter of 2007 saw 714,000 sf of positive absorption. It was the ninth consecutive quarter of positive absorption, says Scott Miller, first VP with CB Richard Ellis. “We are projecting for the next couple of years a positive absorption of between 350,000 sf and 400,000 sf a year,” says Jack Soloff, SVP with Grubb & Ellis. There is expected to be a record level of absorption in 2008, Miller says. “As of Jan. 15, there was 885,000 sf of absorption with certainly more to come,” he says. The vacancy rate for the fourth quarter was slightly more than 8%, the lowest it has been since 2001, according to the fourth quarter market report by CB Richard Ellis.

The nearly 1.3-million-sf Comcast Center was recently delivered with no additional new office buildings expected to come online for the next three years, Scheuerle says. Brandywine Realty Trust has broken ground for Cira Centre South but it will likely be 24 months before the building is delivered, Miller says. The Internal Revenue Services and Pennsylvania Health Systems have already signed on as tenants for Cira Centre South, he says. Some older buildings have been converted to hotel and residential buildings which has eliminated some office space. “We do not expect that [trend] will continue due to an abundance of condos that currently sit on the market for sale,” Miller says.

Rental rates for class A office buildings also hit an all-time high in 2007. The asking lease rate at the end of the year was $29.47 per sf, according to the Grubb & Ellis report. It was the ninth consecutive quarter that rental rates increased in the central business district, Miller says. Rental rates for class A office properties have increased 18% in the past three years and are expected to increase 8% in 2008, says Craig Scheuerle, SVP with Grubb & Ellis.

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