Philadelphia office space may be among the most affordable in comparison to other major cities, but a recent observation from Jones, Lang, LaSalle, a financial and professional services company with a knack for commercial real estate, reveals Philly’s commercial market is on the road to significant growth.
According to PlanPhilly’s Jon Geeting, Sean Coghlin, JLL’s manager of capital markets research, says Philly’s commercial real estate market “turned the corner last year” after having initially peaked in 2007, only to go on to endure a period of sluggish office space absorption during the recession years (late 2007-mid 2009). This was followed by gradual strengthening in late 2013 and rising office rents in 2014, something Geeting notes is a reflection of the growing office space demand.
This was followed by gradual strengthening in late 2013 and rising office rents in 2014, something Geeting notes is a reflection of the growing office space demand.
And so, what makes this different from the last upswing we saw? Here’s what Geeting reports:
Coghlin says that what distinguishes this cycle of expansion from the prior cycle is that the participation rate, the growth across sectors and the number of companies, is much higher.
“If we’re looking at office leasing, that breaks into three categories: lease expiration, organic growth, and in-bound demand,” he says, “In prior cycles, the majority of our activity was driven by lease expiration, then by organic growth of a few users and big institutions, and then in-bound demand, companies moving in from outside the city, which really wasn’t in play. Looking at office leasing demand today, we’re seeing one out of every four lease transactions has some element of growth, either organic growth of existing companies or in-bound growth.”
So, are we experiencing a real estate bubble? PlanPhilly doesn’t think so:
…we would need to be building a volume of offices or mixed-use multi-family buildings that can’t be justified by the near-term and medium-term levels of demand for office space and apartments. But the high absorption rates in the office markets and the apartment markets that we see accompanying high levels of construction make that story unlikely.
…For the foreseeable future, the more pressing worry is that we’ll build too few apartments and offices, not too many.
• JLL: Philly’s commercial real estate market turned the corner in 2014 [PlanPhilly]
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