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In the wake of the pandemic, the Philadelphia metro office market saw overall occupancy shrink by more than 2.9 million square feet (sq. ft.) during 2020, as the last nine months of the year brought three consecutive quarters of negative absorption. Most of these losses occurred in the Philadelphia CBD and suburban markets. Together, these markets posted 2.8 million sq. ft. of negative absorption since April 2020. In comparison, the first three quarters of negative absorption following the start of the 2007-2009 recession tallied the same magnitude of losses. With a few quarters of data collected, comparisons between the two recessions became more viable.
To start, the underlying cause of each recession was significantly different. The collapse of debt
Q4 2020 CBRE Research © CBRE Research, 2020 | 1
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Figure 1: Philadelphia Metro Office-Using Employment, Not Seasonally Adjusted
Source: Bureau of Labor Statistics, 2020
MARKETVIEWPHILADELPHIA OFFICE, Q4 2020
2020: This time, it was differentVacancy Rate16.5%
Overall Asking Rent$29.54
YTD Net Absorption-2.9 MSF
Under Construction1.8 MSF
• While the pandemic created an abrupt drop in
office-occupying employment early in the year,
recovery has been swift, especially compared to the
Great Financial Crisis.
• Significant work-from-home strategies were
announced in 2020 by local and national
companies, pointing toward a secular shift that will
dampen the office recovery to some extent although
the severity is not yet known.
• Life sciences will prove to be the most significant
driving factor of office recover while transforming the
supply side much like shifting demographics had
done for downtown office conversions to multifamily
during the past ten years.
Peak
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96% of Peak96% of Peak
MARKETVIEW
6.3 %
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.1 %
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.5 %
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%28
.1 %
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%
Overall Market Vacancy Rate: 16.5 %
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markets and lack of liquidity following the Great Financial Crisis (GFC) dampened economic and subsequent employment recoveries. This caused the recovery period following the GFC to extend for nearly six years from an employment perspective. But this time, it was different.
As government-mandated shutdowns and other responses to the pandemic drove down employment at unprecedented levels, the composition of jobs lost and rapid rebound pointed toward much stronger underlying economic fundamentals than realized following the GFC. A closer look at employment showed most jobs lost were in the hospitality, restaurant and retail sectors. Current office occupying employment in the Philadelphia metro sits at 96.0% of the previous peak according to the November jobs data from the Bureau of Labor Statistics. In contrast, 96.0% of the peak office-occupying jobs tallied in late 2007 was not matched until 2013. But economic
fundamentals are only a portion of the recovery story.
Where the two recessions may prove similar is through secular shifts in office utilization that followed or will follow both recessions. Following the GFC, office space utilization shrunk from around 250 sq. ft.-per-employee to around 175 sq. ft.-per employee. This dampened Philadelphia’s office recovery despite growing employment levels.
Similarly, as people were forced to work from home as office locations shut down around the metro area, companies began to realize the viability of remote work for larger portions of their workforce than previously considered. Several examples of changing real estate strategies, both locally and nationwide, already occurred such as Bryn Mawr Trust shifting 40% of its workforce to work-from-home or Nationwide Insurance announcing it will be closing most of their facilities including their 220,000-sq.-ft. facility in
PHILADELPHIA OFFICE
Q4 2020 CBRE Research © CBRE Research, 2020 | 2
Source: CBRE Research, Q4 2020
Figure 2: Vacancy Rates by Submarket
MARKETVIEW
Tenant Building Size (Sq. Ft.) Transaction Type
SUEZ North America 3600 Horizon Blvd 58,377 New Lease
BDP International 510-530 Walnut St 49,145 Renewal/Contraction
Cornelis Networks, Inc. 1500-1550 Liberty Ridge Dr 47,320 New Lease
Citicorp Credit Services 1000 N West St 45,852 Renewal
TD Bank, N.A. 2005 Market St 43,969 New Lease
Universal Synergistics, Inc. 5 E Stow Rd 40,340 Renewal
Kaplan Stewart 910 Harvest Dr 35,000 Renewal
Nuclear Regulatory Commision 475 Allendale Rd 33,744 New Lease
Exponent 50 N 37th St 32,000 New Lease
Optinose 1020 Stony Hill Rd 30,099 Renewal
0.0
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PHILADELPHIA OFFICE
Q4 2020 CBRE Research © CBRE Research, 2020 | 3
Harleysville, PA. The degree to which companies adopt work-from-home in the aggregate is still unclear, but this effect will be a headwind for office recovery moving forward.
But Philadelphia has an advantage compared to most other metros: life sciences. As one of the fastest growing major life sciences clusters in the U.S. according to a recent CBRE report, demand for life science space will both buoy office demand as well provide opportunities to renovate and reimagine existing, traditional office spaces both downtown and in suburban markets. Demographic shifts during the past ten years facilitated renovations of obsolete downtown office buildings into sought-after multifamily space while landlords invested in functional office buildings in order to attract tenants. This effectively rejuvenated much of the downtown inventory. Undoubtedly, Philadelphia’s growing life sciences industry will also have virtuous effects by transforming, revitalizing and driving demand for office space in the coming years.
Figure 4: Sales Volume, 4-Quarter Aggregate
Source: Real Capital Analytics, CBRE Research, Q4 2020
Source: CBRE Research, Q4 2020
Figure 5: Significant Lease Transactions
MARKETVIEW PHILADELPHIA OFFICE
Q4 2020 CBRE Research © CBRE Research, 2020 | 4
Figure 3: Philadelphia Metro Office Market Statistics
Source: CBRE Research, Q4 2020
SubmarketInventory(Sq. Ft.)
TotalVacancy Rate
(%)
Under Construction
(Sq. Ft.)
YTD Net Absorption
(Sq. Ft.)
Avg. Asking Lease Rate
($/Sq.-Ft./Yr.)
Avg. Class AAsking Lease
Rate($/Sq.-Ft./Yr.)
Market West 29,043,680 13.1 308,000 -995,177 $36.87 $39.89
Market East 7,879,617 13.5 - -64,707 $31.29 $33.83
Independence Hall 4,529,039 22.4 - -165,790 $33.38 $33.62
University City 4,918,615 7.2 389,000 16,920 $35.49 $45.60
Downtown Philadelphia Subtotal 46,370,951 13.4 697,000 -1,208,754 $33.98 $35.04
Bala Cynwyd 2,861,073 16.8 - -109,736 $34.90 $35.79
Blue Bell 4,482,412 20.9 - 25,481 $24.88 $30.13
Central Bucks County 1,945,697 22.3 - -30,503 $23.47 $28.99
Conshohocken 3,363,601 16.4 687,045 -53,363 $37.42 $41.79
Delaware County 5,289,168 15.3 378,000 -6,788 $27.93 $29.53
Exton/West Chester 3,990,118 13.9 - 14,251 $24.98 $27.94
Fort Washington 3,181,809 28.1 - 26,868 $24.74 $28.85
Horsham/Willow Grove 5,051,463 21.7 - -281,396 $23.95 $27.51
Jenkintown 1,422,210 22.6 - -97,009 $24.18 $25.00
King of Prussia/Valley Forge 16,795,634 15.4 - -380,500 $28.53 $32.85
Lower Bucks County 5,195,034 21.8 - -205,093 $25.23 $27.16
Main Line 2,768,565 6.3 - 21,290 $40.02 $45.33
North Penn 890,843 27.5 - -10,440 $20.01 $19.14
Plymouth Meeting 2,332,475 30.5 - -35,414 $32.60 $36.77
Upper Main Line 1,008,287 13.9 - 35,337 $29.44 $38.07
Suburban Philadelphia Subtotal 60,578,389 18.3 1,065,045 -1,087,015 $26.91 $30.52
MARKETVIEW PHILADELPHIA OFFICE
Q4 2020 CBRE Research © CBRE Research, 2020 | 5
Figure 3 (cont.)
Source: CBRE Research, Q4 2020
SubmarketInventory (Sq.
Ft.)Total Vacancy
Rate (%)
Under Construction
(Sq. Ft.)
YTD Net Absorption (Sq.
Ft.)
Avg. Asking Lease Rate
($/Sq.-Ft./Yr.)
Avg. Class AAsking Lease
Rate($/Sq.-Ft./Yr.)
Burlington County 9,392,892 18.8 - -345,193 $21.76 $23.27
Camden County 7,811,267 13.6 - -123,362 $20.17 $21.64
Gloucester County 467,492 15.1 - 4,097 $24.58 -
Southern New Jersey Subtotal 17,671,651 16.4 - -464,458 $21.30 $23.09
Wilmington CBD 7,130,489 25.9 - 13,761 $26.44 $28.11
North New Castle County 2,200,929 18.7 - -110,878 $26.97 $27.80
South New Castle County 4,360,471 16.4 - -10,925 $22.20 $23.60
West New Castle County 1,476,367 8.9 - -15,204 $25.27 $24.23
Northern Delaware Subtotal 15,168,256 20.5 - -123,246 $24.74 $26.30
Lehigh Valley East 4,096,430 13.4 - -8,640 $22.08 $23.27
Lehigh Valley West 5,881,186 22.0 73,000 -72,976 $18.89 $23.97
Lehigh Valley Subtotal 9,977,616 18.5 73,000 -81,616 $19.93 $23.68
Harrisburg East 7,494,986 14.5 - -11,350 $18.34 $20.06
Harrisburg West 3,839,084 11.7 - 15,826 $20.30 $21.55
Harrisburg Subtotal 11,334,070 13.6 - 4,476 $18.98 $20.65
Market Total 161,100,933 0.2 1,835,045 -2,960,613 $26.91 $29.54
MARKETVIEW
Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.
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JOE GIBSONAssociate Director of Research, PA+1 610 727 [email protected]
RICHARD BIENIEKField Research Analyst+1 610 727 [email protected]
NICK JANNSenior Research Analyst+1 215 561 [email protected]
PHILADELPHIA OFFICE
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