PHILADELPHIA | Highrise Development Thread IX

[1487]

Originally Posted by summersm343

Center City office market seeing record rents

The article is locked for subscriber access only, but the title says it all.

http://www.bizjournals.com/philadelphia/...office-market-record-rents-cre-2016.html

I was just about to post that. I am really thinking it's likely Aramark will end up in a new building. Maybe 21st and Market. I hope they end up doing that- but I'm sure there are a few big blocks open including the Dow building and some space at Mellon Bank center.

[PhillySteaks]

Center City office market seeing record rents

SSH Real Estate is representing a company that needs 4,500 square feet and wants to be in one of the best buildings in Center City that has great views, but – in what is apparently a sign of the times – it’s proving difficult to find what the tenant wants.

“We can’t find them space,” said Jeff Selighsohn, a partner at SSH. “It’s common knowledge you can’t find large blocks of trophy and Class A space but this is the first I’ve heard it at this size. I went through everything and it’s not there.”

While high-end office space is scarce, the Center City office market tightened up at all levels during the second quarter and experienced rent growth, according to the latest round of research reports. The data point to a market that is healthy and on the rise.

Class A asking office rents reached a new record at $30.98 a square foot, which is up 7 percent year-over-year, according to CBRE Inc. quarterly research.

The overall vacancy rate, which was at 15.3 percent three years ago and hit 14.3 percent two years ago is now down to 11 percent, according to CBRE. That figure is up slightly from 10.3 percent that was recorded last quarter, but the opening of FMC Tower drove the change. The new building put 622,000 square feet of trophy office space on the market—of which just 150,000 square feet remains available to lease.

The introduction of FMC Tower to the market also helped push rents to unprecedented levels. So-called gross up rents at the new skyscraper were north of $50 a square foot, according to JLL data. It wasn’t alone when it comes to rents reaching new heights.

“Market East remains the most aggressive submarket in terms of rent growth,” JLL’s report said. Rental rates have jumped by 12.9 percent year over year.

The strengthening market fundamentals have helped even Class B landlords such as SSH, which also owns several office buildings. Rents have ticked up in those properties recently. “It was a flat line,” Seligsohn said. “Now the line continues to move upward.”

The burn for landlords? Tenant improvement costs have also spiked as materials, contractors and other prices have gone up, dampening profitability.

The dynamics point to a market leaning more towards landlords, said Paul Garvey, a broker with Cushman & Wakefield who focuses on one of the tightest submarkets — University City. There the vacancy is below 5 percent.

To ease that pressure, new office buildings are in the pipeline. Construction of 3675 Market St. is underway. The 350,000-square-foot building will have office and lab space, which is already getting gobbled up.

“We have handshakes for about half of it,” Garvey said, declining to disclose the names of the firms that have indicated they want to occupy space in the building.

Even more space is on the way for University City. Garvey said he is already getting feelers for 3800 Market St., a 750,000-square-foot complex that will be constructed in two phases.

A couple of drivers are propelling the activity in University City. “It’s new, urban and state-of-the-art product and the environment of University City itself,” he said. “The vibe, the community, the programming and education. It’s amazing the investment that is going on there.”

[summersm343]

^^Thank you for posting PhillySteaks

[1487]

Does anyone know about a 15 story 99 unit building at 1201 Vine? There is a scheduled ZBA hearing for such a development on 8/31. 221' height on this building. Could this actually become a reality before the long delayed Eastern Tower?

[summersm343]

Originally Posted by 1487

Does anyone know about a 15 story 99 unit building at 1201 Vine? There is a scheduled ZBA hearing for such a development on 8/31. 221' height on this building. Could this actually become a reality before the long delayed Eastern Tower?

That would be a great development for the area! The site is currently a surface parking lot. Excited to see renderings. Will compliment the Goldtex a block over and the Chinatown Easter Tower (should it ever get built) two blocks away.

[PhillySteaks]

Originally Posted by summersm343

^^Thank you for posting PhillySteaks

I've taken notice to the recent quarterly growth in office rents. FMC is pushing the envelope here since it's a bit of an outlier. I'm very happy to see consistent gains in office rents. Market East isn't being driven by traditional class A space though - it's more or less two things. The new East Market development by NREA will push rents because it's new construction, but the bulk is redevelopment of former B class and vacant buildings into creative office space such as the Biddle & Hale buildings. All the rent growth seen in Market East is driven by the "creative type" office space, traditional office space isn't growing that aggressively. This creative space suits certain office tenants (architects, tech companies, designers, etc.) but I wouldn't consider it traditional office space needed for say an Aramark, Law Firm, Insurance Co. Etc. Market East is becoming the creative corridor - Indep. Mall remains more or less traditional office format.

I don't think TI dollars have too much an effect on landlords. The allocation is driven by the market. A tighter market gives cause to landlords to lower their concessions. If a tenant needs $35psf allowance to build out their space and the market only dictates the landlord provides $20psf in concessions than it's on the tenant to either cut down their build out (maybe a few less pool tables for a tech company, lol) or if they really want those pool tables and chandeliers to pay the remaining $15psf out of pocket.

[volguus zildrohar]

Originally Posted by 1487

Does anyone know about a 15 story 99 unit building at 1201 Vine? There is a scheduled ZBA hearing for such a development on 8/31. 221' height on this building. Could this actually become a reality before the long delayed Eastern Tower?

That's a pretty big project to not have come up on our radar by now.

[Larry King]

Originally Posted by 1487

Does anyone know about a 15 story 99 unit building at 1201 Vine? There is a scheduled ZBA hearing for such a development on 8/31. 221' height on this building. Could this actually become a reality before the long delayed Eastern Tower?

according to public record, post has an option on the site. maybe they want to develop it or flip permits

[Caruso975]

Originally Posted by PhillySteaks

I've taken notice to the recent quarterly growth in office rents. FMC is pushing the envelope here since it's a bit of an outlier. I'm very happy to see consistent gains in office rents. Market East isn't being driven by traditional class A space though - it's more or less two things. The new East Market development by NREA will push rents because it's new construction, but the bulk is redevelopment of former B class and vacant buildings into creative office space such as the Biddle & Hale buildings. All the rent growth seen in Market East is driven by the "creative type" office space, traditional office space isn't growing that aggressively. This creative space suits certain office tenants (architects, tech companies, designers, etc.) but I wouldn't consider it traditional office space needed for say an Aramark, Law Firm, Insurance Co. Etc. Market East is becoming the creative corridor - Indep. Mall remains more or less traditional office format.

I don't think TI dollars have too much an effect on landlords. The allocation is driven by the market. A tighter market gives cause to landlords to lower their concessions. If a tenant needs $35psf allowance to build out their space and the market only dictates the landlord provides $20psf in concessions than it's on the tenant to either cut down their build out (maybe a few less pool tables for a tech company, lol) or if they really want those pool tables and chandeliers to pay the remaining $15psf out of pocket.

TI allowances absolutely have an impact on profitability. TI allowances for raw or new space may be as high as &60 to $80 per RSF. Somewhat less for retrofitting existing space.

Aramark most likely going to the Marketplace which will be renovated to a class B quality. Apparently no residential. No vertical mixed use.

[PhillySteaks]

Originally Posted by Caruso975

TI allowances absolutely have an impact on profitability. TI allowances for raw or new space may be as high as &60 to $80 per RSF. Somewhat less for retrofitting existing space.

Aramark most likely going to the Marketplace which will be renovated to a class B quality. Apparently no residential. No vertical mixed use.

I never said they didn't champ - they affect developers. The amount of TI dollars a landlord will fork over is a direct correlation to the inventory available on the market. TIs are obviously higher for raw space, that's not rocket science. That being said if you're building new construction and are delivering shell then you're going to need to pay higher amounts to steal tenants from another building so they can build the initial fit out (aka what BrandyWine did to get FMC). This may affect developers cost basis, but not private equity groups who are buying office in a low vacancy submarket. Economics 101, don't pay more than replacement cost. The fact of the matter is that spec office construction is still limited so TI dollars for 2nd generation space is still relatively close to 1 years rent (in philly that's around $30psf), give or take the quality of the tenant, SF leased, term, or a multitude of other factors.

You're betting Aramark, a 8.7 billion dollar company, will take Class B space? I'll take that bet. I think you may be a tad off. No one is developing class B - rents don't justify the high costs of construction. Look at FMC, they needed $50 psf gross just to make that investment work. PMC isn't shelling out $250m for some class B space. I also don't think Aramark will move there. It was the rumor a few months ago but to be honest I don't think PMC can deliver on time. That's just my opinion though.

Here's some details on the development.

http://articles.philly.com/2016-02-18/business/70701838_1_market-street-rents-jonathan-stavin

[1487]

Originally Posted by PhillySteaks

I never said they didn't champ - they affect developers. The amount of TI dollars a landlord will fork over is a direct correlation to the inventory available on the market. TIs are obviously higher for raw space, that's not rocket science. That being said if you're building new construction and are delivering shell then you're going to need to pay higher amounts to steal tenants from another building so they can build the initial fit out (aka what BrandyWine did to get FMC). This may affect developers cost basis, but not private equity groups who are buying office in a low vacancy submarket. Economics 101, don't pay more than replacement cost. The fact of the matter is that spec office construction is still limited so TI dollars for 2nd generation space is still relatively close to 1 years rent (in philly that's around $30psf), give or take the quality of the tenant, SF leased, term, or a multitude of other factors.

You're betting Aramark, a 8.7 billion dollar company, will take Class B space? I'll take that bet. I think you may be a tad off. No one is developing class B - rents don't justify the high costs of construction. Look at FMC, they needed $50 psf gross just to make that investment work. PMC isn't shelling out $250m for some class B space. I also don't think Aramark will move there. It was the rumor a few months ago but to be honest I don't think PMC can deliver on time. That's just my opinion though.

Here's some details on the development.

http://articles.philly.com/2016-02-18/business/70701838_1_market-street-rents-jonathan-stavin

yeah I really don't see Aramark moving to such a building at that location. Not only has PMC not really done a lot of high end office space, that location is a just not as ideally located as many other buildings in CC relative to transportation. If there will be a 3rd comcast tower perhaps they can move into that building. Something new at 13th and Market would be great as well.

[3rd&Brown]

Originally Posted by 1487

yeah I really don't see Aramark moving to such a building at that location. Not only has PMC not really done a lot of high end office space, that location is a just not as ideally located as many other buildings in CC relative to transportation. If there will be a 3rd comcast tower perhaps they can move into that building. Something new at 13th and Market would be great as well.

I see Aramark going to the blocky-Brandywine building that was proposed for what, 21st & Market? That actually sort of works well because I assume their tower, though iconic, is a bit tired on the inside.

That space would be consumed and retro-fitted very quickly by all the tech firms expanding along East Market and the 13th Street corridor. Could provide some very good synergy for the area.

[1487]

Originally Posted by 3rd&Brown

I see Aramark going to the blocky-Brandywine building that was proposed for what, 21st & Market? That actually sort of works well because I assume their tower, though iconic, is a bit tired on the inside.

That space would be consumed and retro-fitted very quickly by all the tech firms expanding along East Market and the 13th Street corridor. Could provide some very good synergy for the area.

One thing that is lacking between City Hall and Independence Mall is an outdoor plaza or small park for gathering/eating in summertime. Now that Im east of Market I notice it big time. If I were aramark the chance to move to a building that has some sort of dedicated outdoor space for eating/event hosting/relaxing would be a major bonus relative to Aramark. Many improvements are coming to East Market, but none will address this need. I really wish the 1100 Market project had included some sort of courtyard space.

[Baconboy007]

Originally Posted by 1487

One thing that is lacking between City Hall and Independence Mall is an outdoor plaza or small park for gathering/eating in summertime. Now that Im east of Market I notice it big time. If I were aramark the chance to move to a building that has some sort of dedicated outdoor space for eating/event hosting/relaxing would be a major bonus relative to Aramark. Many improvements are coming to East Market, but none will address this need. I really wish the 1100 Market project had included some sort of courtyard space.

I agree that this East of Market could use some outdoor space but I don't think that's much of a motivator for Aramark. They run the convention center and has often used that space for corporate events. The building is very dated on the inside which is one motivator to move and to get everyone under one building. Currently they are split between the tower and the Wanamaker building.

[3rd&Brown]

Originally Posted by Baconboy007

I agree that this East of Market could use some outdoor space but I don't think that's much of a motivator for Aramark. They run the convention center and has often used that space for corporate events. The building is very dated on the inside which is one motivator to move and to get everyone under one building. Currently they are split between the tower and the Wanamaker building.

I get it. But Dilworth Plaza is what, 3 blocks away? Are people that lazy?

I work in an area of NYC with literally zero green space. I have to walk about 5 blocks to get to something that resembles a park, and even then, there's usually no where to sit. But I somehow manage.

[1487]

Originally Posted by Baconboy007

I agree that this East of Market could use some outdoor space but I don't think that's much of a motivator for Aramark. They run the convention center and has often used that space for corporate events. The building is very dated on the inside which is one motivator to move and to get everyone under one building. Currently they are split between the tower and the Wanamaker building.

im not saying it would be primary motivator, but I do think it would be a HUGE plus in favor of going to new construction. If some other trophy buildings like 3 logan or MBC had space they could fit the bill, but they don't have what Aramark needs. I don't know how much 1101 being dated will be a factor simply because they could easily negotiate for major physical upgrades as part of the lease. But doing so would likely negatively impact Aramark employees and operations.

[1487]

Originally Posted by 3rd&Brown

I get it. But Dilworth Plaza is what, 3 blocks away? Are people that lazy?

I work in an area of NYC with literally zero green space. I have to walk about 5 blocks to get to something that resembles a park, and even then, there's usually no where to sit. But I somehow manage.

not saying its end of the world, but west market has a host of park and plaza spaces. EAst Market has very few- the best of which is the plaza at Jefferson which is typically pretty packed during summer. I was just in chicago and I noticed plazas are a very prominent part of major office/residential developments there- at least around the river.

[summersm343]

Benjamin's Desk opening 2 new co-working spaces in Philadelphia

Benjamin's Desk continues to expand in the city where it is headquartered, adding two new locations totaling more than 20,000 square feet to its presence in Philadelphia.

One of Philadelphia's most successful co-working spaces, Benjamin's Desk is opening a location at the Sun Oil Building at 16th and Walnut streets and in the 2.0 University Place building in University City, according to the Inquirer.

At the start of 2016, it expanded to nearly 20,000 square feet in its Old City home and added an "annex" facility to its Rittenhouse Square location.

http://www.bizjournals.com/philadelphia/...co-working-16th-walnut-university-c.html

[Parkway]

We have an developing development that possibly effects the development of developments.
http://www.philly.com/philly/news/politi...rget_electricians_union__Johnny_Doc.html

[summersm343]

For those who haven't already seen, I took a ton of picture updates yesterday. Enjoy!