{"id":1004737957,"date":"2024-12-10T05:23:49","date_gmt":"2024-12-10T13:23:49","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004737957"},"modified":"2024-12-11T06:56:54","modified_gmt":"2024-12-11T14:56:54","slug":"philadelphia-office-prices-drop-construction-slows","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/","title":{"rendered":"Philadelphia Office Prices Drop, Construction Slows"},"content":{"rendered":"
\n
\"Rendering<\/a>
3151 Market St. is part of the $3.5 billion mixed-use Schuylkill Yards project in University City. Rendering courtesy of Brandywine Realty Trust <\/em><\/figcaption><\/figure><\/div>\n\n\n

Prices for office space in Philadelphia continued to decrease in the second half of the year. The market\u2019s fundamentals did not show signs of improvement, with vacancy ballooning 510 basis points over the past 12-month period ending in October, CommercialEdge data shows.<\/p>\n\n\n\n

The supply pipeline remained muted, with only 1.9 million square feet under construction. Four out of the five projects underway in October were life science assets, signaling the market\u2019s status as an up-and-coming hub for the sector.<\/p>\n\n\n\n

Philadelphia’s life science sector expands<\/h2>\n\n\n\n

Philadelphia had 1.9 million square feet of office space under construction as of October. This amount represented 1.1 percent of the market\u2019s existing stock\u201420 basis points above the national figure.<\/p>\n\n\n\n

Compared to its peer markets, Philadelphia was ahead of Phoenix (0.4 percent of stock underway), Houston (0.7 percent) and Charlotte, N.C. (0.9 percent), but lagged San Diego (3.2 percent) and Nashville (3.5 percent).<\/p>\n\n\n

\n
\"Rendering<\/a>
The Chubb headquarters will span 438,000 square feet. Rendering courtesy of JLL <\/em><\/figcaption><\/figure><\/div>\n\n\n

The largest project underway is Parkway Corp.\u2019s 2000 Arch St., a 550,000-square-foot building in the Logan Square neighborhood. The asset is a build-to-suit for Chubb, for which the developer obtained $409 million<\/a> in credit tenant lease financing last year.<\/p>\n\n\n\n

The other four developments are all life science assets. Brandywine Realty Trust and Drexel University topped out 3151 Market St.<\/a> in October last year\u2014a 435,000-square-foot building that is part of the $3.5 billion Schuylkill Yards master plan. At 3001 Chestnut St., Spark Therapeutics is constructing its future center for gene therapy manufacturing, which will include office space\u2014also part of the same master plan.<\/p>\n\n\n\n

The remaining two are a 350,000-square-foot facility under construction for Children\u2019s Hospital of Philadelphia, set to open in 2025 and include laboratory space; and 3201 Cuthbert St., under construction by Gattuso Development Partners and Vigilant Holdings of New York. The latter is a 519,647-square-foot life science property for which the duo obtained $290 million in construction financing<\/a> in late 2022.<\/p>\n\n\n\n

Developers completed 932,303 square feet of office space across five buildings in Philadelphia year-to-date through October. Deliveries in the metro were down 35.4 percent year-over-year\u2014in line with national trends\u2014and accounted for 0.4 percent of existing stock. All completions were in the first half of the year.<\/p>\n\n\n\n

Office-to-residential conversions garner interest<\/h2>\n\n\n\n

As a response to rising interest for office-to-residential conversions, CommercialEdge created the Conversion Feasibility Index<\/a> (CFI)\u2014powered by Yardi\u2014which measures a building\u2019s potential to be transformed into multifamily rental units.<\/p>\n\n\n\n

The CFI score has three tiers, with Tier 1 buildings being the most likely candidates. Philadelphia had 43 assets\u2014roughly 5.6 million square feet\u2014that fell in the Tier 1 range, as of October. An additional 165 buildings were Tier 2, approximately 26.8 million square feet.<\/p>\n\n\n\n

Among the largest of these is 1701 Market St., a 929,124-square-foot high-rise that will be converted into 299 rental apartments. Alterra Property Group secured a $70 million construction loan from Bank OZK for the project, slated for completion in Spring 2025. The property has a CFI score of 96, marking its high potential for conversion. <\/p>\n\n\n\n

Gazit Horizons is redeveloping the 76,500-square-foot Art Deco building at 1618-1622 Chestnut St. The owner is planning to bring 67 units online throughout the seven floors currently occupied by office space.<\/p>\n\n\n\n

Average price lags peer markets<\/h2>\n\n\n\n

Investors traded $316 million in assets across the metro year-to-date through October. Office space in Philadelphia continued to change hands at a below-average price per square foot, $83. Meanwhile, the U.S. figure clocked in at $177.<\/p>\n\n\n\n

Philadelphia also ranked last among its peer markets when it came to the average price, below Houston ($104), Charlotte ($151), Phoenix ($164), Nashville ($193) and San Diego ($198).<\/p>\n\n\n

\n
\"Exterior<\/a>
The 1895-built property changed hands for nearly $116 per square foot, which was significantly above the market’s average. Photo courtesy of CommercialEdge<\/em><\/figcaption><\/figure><\/div>\n\n\n

The largest transaction remained Incyte\u2019s $34.2 million purchase of the office asset at 1100 N. King St. from Capital Commercial Investments. The pharmaceutical company also bought the property at 1100 N. French St., for $13.3 million, from the same buyer.<\/p>\n\n\n\n

KKR sold the 267,597-square-foot asset at 111 S. Independence Mall E for $31 million to Lubert-Adler\u2014the second largest transaction year-to-date through October. The Bourse building was constructed in 1895 and served as the nation\u2019s first commodities exchange market. It underwent two rounds of complete renovations\u2014in 2012 and 2018\u2014and now houses 20,000 square feet of retail and nine floors of office space.<\/p>\n\n\n\n

Vacancy grew, but stabilized below U.S. average<\/h2>\n\n\n\n

Philadelphia\u2019s overall vacancy stood at 18.9 percent as of October, below the 19.4 percent national figure. However, the metro\u2019s rate increased by a whopping 510 basis points year-over-year, while the U.S. average was up 160 basis points.<\/p>\n\n\n\n

Compared to its peer markets, Philadelphia\u2019s vacancy stood somewhere in the middle\u2014higher than Charlotte (16.4 percent), Nashville (17.5 percent) and Phoenix (18.4 percent), but below San Diego (20.6 percent) and Houston (24.3 percent).<\/p>\n\n\n

\n
\"The<\/a>
1400 Morris Drive is a recently upgraded office building within a 1.1 million-square-foot business campus. Image courtesy of Rubenstein Partners<\/em><\/figcaption><\/figure><\/div>\n\n\n

Not many significant deals took shape across the market. In September, Potter Anderson & Corroon LLP renewed its 82,757-square-foot lease<\/a> at 1313 N. Market St. in Wilmington, Del., which it will use as its headquarters for another 13 years. The Siegfried Group owns the 530,000-square-foot building.<\/p>\n\n\n\n

Earlier in November, Rubenstein Partners signed Arcfield<\/a> at its Chesterbrook Corporate Center in Wayne, Pa. The new tenant will occupy 36,000 square feet in total\u2014the entire third floor and part of the first floor. The asset at 1400 Morris Drive is part of a 1.1 million-square-foot campus.<\/p>\n\n\n\n

Philadelphia’s expanded coworking inventory<\/h2>\n\n\n\n

In October, Philadelphia had around 2.8 million square feet of office space dedicated to coworking. This was 1.5 percent of the market\u2019s total inventory, 40 basis points below the national figure. Compared to its peers, Philadelphia stood at the bottom, outpaced by Phoenix (1.9 percent), Charlotte (1.9 percent), San Diego (2.1 percent) and Nashville (3.5 percent).<\/p>\n\n\n\n

Despite lagging peer markets, Philadelphia\u2019s amount of shared space locations grew considerably, up 9 percent from the second to the third quarter, according to a recent report from CoworkingCafe<\/a>. This brought the total to 150 coworking locations. The metro also had a below-average median price for monthly rates for open workspaces, at $119 in September.<\/p>\n","protected":false},"excerpt":{"rendered":"

The market had a sluggish start to Q4, the latest CommercialEdge data reveals.<\/p>\n","protected":false},"author":1284,"featured_media":1004687364,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21782,21783,52420,11,21742,21747,1494],"tags":[51047,50674],"class_list":["post-1004737957","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-development","category-investment","category-market-updates","category-midatlantic","category-latest","category-office","category-philadelphia","tag-marketupdate","tag-commercialedge"],"acf":[],"yoast_head":"\nPhiladelphia Office Prices Drop, Construction Slows - Commercial Property Executive<\/title>\n<meta name=\"description\" content=\"The latest CommercialEdge-powered market update on Philadelphia's office sector reveals a slow beginning to the fourth quarter.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Philadelphia Office Prices Drop, Construction Slows\" \/>\n<meta property=\"og:description\" content=\"The latest CommercialEdge-powered market update on Philadelphia's office sector reveals a slow beginning to the fourth quarter.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2024-12-10T13:23:49+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-12-11T14:56:54+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/10\/3151-Market_Exterior-Rendering_1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"804\" \/>\n\t<meta property=\"og:image:height\" content=\"600\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Tudor Scolca\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/\",\"name\":\"Philadelphia Office Prices Drop, Construction Slows - Commercial Property Executive\",\"isPartOf\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/10\/3151-Market_Exterior-Rendering_1.jpg\",\"datePublished\":\"2024-12-10T13:23:49+00:00\",\"dateModified\":\"2024-12-11T14:56:54+00:00\",\"author\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/daae3daa7b99fdfb75a85cb3cd92a26d\"},\"description\":\"The latest CommercialEdge-powered market update on Philadelphia's office sector reveals a slow beginning to the fourth quarter.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/philadelphia-office-prices-drop-construction-slows\/#primaryimage\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/10\/3151-Market_Exterior-Rendering_1.jpg\",\"contentUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/10\/3151-Market_Exterior-Rendering_1.jpg\",\"width\":804,\"height\":600,\"caption\":\"3151 Market St. is part of the $3.5 billion mixed-use Schuylkill Yards project in University City. 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