[summersm343]

Some news on the office market in Philadelphia. There is a need for new trophy towers in the city. We could see some action on the Cira South Office Tower sooner than we thought.

Major space users in Center City are itching for more SF but being met by low vacancy. That’s a formula for new office development, a real possibility in 2013, according to Newmark Grubb Knight Frank executive managing director Wayne Fisher.

Wayne says Center City’s trophy office buildings, mostly towers over 40 stories, benefited the most from last year’s uptick in leasing. The trophies didn’t have high vacancies going into the downturn, and aggressive rents attracted tenants who might have otherwise stuck with their previous digs. Deals could be had for around $30/SF, down from 2000s highs around $35 to $40/SF. Now trophy space is extremely tight, and rents will go up this year.

There are only eight full floors of available space among trophy assets, Wayne adds—about 160k SF all together. Liberty Property Trust has plans for a roughly 400k SF office building, and a few law firms are kicking that tire, Wayne says. In Philly, new construction comes in at roughly a $45 to $50/SF proposition, but the higher cost would be partly offset by operating and layout efficiencies, LEED status, and other new-building advantages.

Newmark Grubb Knight Frank says office leasing volume in Center City totaled about 2.8M SF in 2012, a 40% increase over 2011, driven by a handful of large renewals and new leases. The company predicts net absorption of 150k SF by the end of 2013. Vacancy, which ended 2012 at about 14.1% overall, is projected to drop to 13.7% by the end of 2013. Despite this modest improvement, rental rates will remain flat, with the exception of trophy assets, where direct vacancy was a healthy 5.1% at the end of 2012.

http://www.bisnow.com/commercial-rea...-city-offices/