How Residents Are Rearranging the Office Market Furniture
Amid the numbers contained in JLL’s latest quarterly report on the Philadelphia office market were some moves that signal that life along Market Street East is about to get more interesting. In fact, it might even lead to the ultimate transformation of the entire length of Center City’s principal thoroughfare into an 18-hour live/work/play environment, if not a 24-hour one.
Two of the big ones were Five Below’s announcement that it will move its headquarters into the Lits Building at 701 Market and Pulver’s later announcement that it will build a speculative office and retail tower at 1301 Market. Coming as both do on the heels of the massive East Market office/residential/retail project, they signal growing interest among office tenants in the eastern stretch of Market.
There’s a good reason for this, said Lauren Gilchrist, vice president and director of research at JLL.
“The most dense concentration of Millennials downtown live in the Washington Square West area, and companies are moving to areas where they think they can best attract skilled talent,” she said. One reason for this rush is that competition for such talent is now fierce: the unemployment rate among the college-educated is 2.5 percent, well below the level considered to be “full employment.” Thus companies are moving to lease both new and renovated space in buildings such as The Bourse, East Market, the Bailey and Biddle buildings and the Steele across from East Market. Many of these buildings fall into the relatively new and highly prized “creative” office category, which commands rents per square foot higher than all but the most prized trophy buildings west of City Hall.
And after such retail projects as the Gallery makeover are thrown into the mix as well, the end result will be a livelier Market East, Gilchrist said.
“It’s a function of the level of investment that’s happening over there. From 2014 through 2018, we’re going to see at least $1.5 billion in renovations [and new construction]. It will change the quality of the office space but also of the street life.”
The Philadelphia office market in 2016 was not as hot as it has been in the recent past: total leasing activity this year was lower than in any of the previous five years, and net space absorption was the lowest since 2013. But asking rents for space rose more this year than in any of the previous five years and stand at their highest level in the past decade, and as 57 percent of all new office construction in Center City is pre-leased, odds are that more new office space will enter the pipeline this year too.