The Rise of the Creative Class Office Building

The east-of-Broad office market gets hot, and Jones Lang LaSalle attributes the takeoff to a new type of office space.

Firms like MJS Restaurants, whose Biddle Building office is shown here, prefer the funkier loft-like aesthetic of "creative" office space. | Photo: Ryan Scott

Firms like MJS Restaurants, whose Biddle Building office is shown here, prefer the funkier loft-like aesthetic of “creative” office space. | Photo: Ryan Scott

Commercial real estate services firm JLL released its latest quarterly analysis (PDF) of the Philadelphia office market last week, and overall, the news is good: job growth is also driving growth in space absorption and an overall rise in rents per square foot.

The average asking rent for office space in Center City as a whole in the first quarter of 2016 was $28.56, a rise of 5.5 percent over year-ago figures. The steepest rise, however, has been in the East Market area, where rents in the first quarter were 12.5 percent above last year’s level. (Rents actually fell in University City, where they were 4.1 percent below 2015’s level.)

JLL’s analysis points to a type of office space that’s new to the market as the driving force behind the sharp rise: “creative” office space. “We typically see this emerging in Class B office buildings that have been retrofitted to modern standards, with modern finishes, open floor plans, high ceilings and lots of light,” said Lauren Gilchrist, vice president and director of research at JLL. Gilchrist pointed to two adjoining buildings on Chestnut and Sansom streets in Midtown Village, the Bailey and Biddle buildings, as prime examples of the category. The Biddle Building is fully occupied, and its owner is now remodeling the Bailey Building space to match.

According to JLL, vacancy rates in creative buildings stood at 3.0 percent at this time last year and now stand at 8.3 percent as owners are busy renovating older buildings to appeal to smaller, younger, and tech-oriented firms that seek out space of this type. The 8.3 percent rate, however, is lower than that for Class A or Class B office space. The only office category where space is tighter is trophy space in the most sought-after office towers, where the vacancy rate is 4.3 percent.

Antoinette Johnson, whose marketing and branding firm At Media occupies a floor of the Biddle Building, said, “We had a frustrating two-year search for a non-traditional office space. Old City was a dead market to me because of how much of the inventory is residential refurbished for office use. Midtown’s revival for office space really started with Goldman Properties, and is now booming with the Biddle and Bailey buildings, Bricktone’s Hale Building and others and now East Market. Spill-over markets like Spring Arts are accommodating the increasing demand for these types of spaces, maximizing natural light, exposed ceilings and shared common areas.”

JLL notes that the rise in leasing activity for creative space has pushed asking rents east of Broad into the $30 per square foot range for the first time, and more space is coming on line. In addition to National Real Estate Development’s East Market project, which combines Class A space with new residential, Brickstone Realty is rehabbing three distinctive smaller buildings in the area, the Swartz, Hale and Steele buildings, into creative office space.