University City and the Navy Yard led the greater Philadelphia office sector last quarter as absorption turned negative in the city’s core and suburbs.
Wikimedia Commons/Dough4872
Burlington’s deal to move its headquarters from South Jersey to a 441K SF space at 3151 Market St. in University City and Hanwha’s 64,400 SF lease near the Navy Yard’s growing shipbuilding operations helped bolster the area last quarter.
Still, the overall central business district — which includes University City and the Navy Yard — has surpassed 63,100 SF of displacement, according to JLL.
Much of that is due to Day & Zimmerman’s move from 97K SF at 1500 Spring Garden St. to 48K SF at 11 Penn Center, JLL Philadelphia Research Manager Emily Friedman said.
“That’s a quarter more than a high-level data point,” Friedman said. “If you just take it at face value, it might look like a weak quarter. That ignores everything that’s happening on the surface… I have a lot of confidence at the end of the year.”
Year-to-date CBD absorption remains positive at 448,500 SF, according to JLL, but this is largely driven by Chubb’s move to a 438K SF build-to-suit headquarters at 2000 Arch St.
University City benefited from the relocation of the Monell Chemical Senses Center to 64K SF at One uCity and Nasdaq’s renewal of a 75K SF lease at the FMC Tower.
Office availability in the University City submarket fell from 22.3% in the second quarter to 19.5% in the third quarter, according to the Savills report. Meanwhile, the availability rate in East Market and West Market was checked to 21.3% and 24.3% respectively.
The Burlington agreement, which the company acquired the building at 3151 Market St. for $ 240M, also gives a positive signal to the wider market, said Savills Philadelphia Research Manager Daniela Stundel.
“It’s a company that’s not eds or meds or really law, so it’s more diversified,” she said.
“The publicity for us from this is hopefully people will see us as a place to move to as a more affordable place than New York or Washington, DC,” he added.
The sale comes after the property, which is slated for completion in 2025 as laboratory space, has been vacant for more than a year.
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3151. Jalan Pasar
Despite the Hanwha deal, office vacancies at the Navy Yard ticked up 1.5 percentage points over the quarter to 20.7%, according to Savills.
The complex could be a good fit for tenants who need easy access to the industrial parts of Philly or the city’s airport, but Stundel said it’s less convenient than Center City.
“I don’t expect tomorrow to be a big change where everybody and their mother wants to go to the Navy Yard,” he said.
In the Philly suburbs, moves exceeded 187K SF moves in Q3, JLL reported. Year-to-date absorption remains positive at 62,700 SF.
The largest deal in the area last quarter was Vanguard’s sale-leaseback of 322,700 SF of space at 1041 W. Valley Road in Wayne, according to a Savills report.
Berkshire Hathaway Fox & Roach’s upcoming expansion into a 40K SF space at 1436 Lancaster Ave. in Berwyn and KenCrest’s move to 26K SF at 401 Plymouth Road in Plymouth Meeting also made the top 10.
Residential conversions in the suburbs are at the forefront of Stundel’s mind, who says demolition for new construction generally makes more sense than repurposing an aging building.
Sal Paone Builder is demolishing most of the Plymouth Ridge Enterprise Center to build 159 townhomes in Plymouth Meeting, while TriPoint Properties is working on 52 Swedesford Road in Malvern into a mixed-use concept with 250 apartments.
A challenging rights climate has historically hurt these projects, but that may change as the suburbs experience a housing shortage.
“That’s something I think we’re going to see more of in the suburbs,” Friedman said.
“Developers need to be able to fight the good fight while proving they work for the city,” he added. “It will give me more confidence to keep trying.”