Suburban office market rebounding

The suburban office market is gaining traction after a rough start to the year.

Even though the overall vacancy rate is any where between 18.9 percent to 22 percent depending on how it’s calculated, the second quarter finally saw a decent amount of space taken off the market and occupied by tenants. During the quarter, absorption came in at 233,610 square feet compared with 28,124 square feet during the first quarter, according to CBRE Inc. data. Of the 14 suburban markets that Jones Lang LaSalle tracks, 10 of them experienced positive absorption from the first quarter to the second quarter.

“The first half of the year was dismal,” said Daniel C. Dagit Jr., a broker who covers the suburbs for CBRE. “It was dark and dismal at the end of the year and the end of the first quarter. Here at the second quarter we have some nice things to say.”

Leasing activity has improved with mostly small and mid-cap companies relocating, upgrading or taking more space, Dagit said. For example, CSL Behring expanded at Maschellmac in King of Prussia, Pa., and now leases a total of 170,000 square feet, and Ascenus extended its lease on 132,900 square feet.

One overriding trend is tenants increasingly demanding fresh, contemporary space.

“The ‘80s and ‘90s look is gone,” Dagit said.

Indeed, tenants desire to move into space that is nicer, is more efficient and has amenities, such as lobby areas with wifi, comfortable seating areas, and exercise facilities, said Mike Morrone, who oversees suburban leasing for Jones Lang LaSalle.

“I call it a flight to efficiency,” he said.

This trend, along with a tight Class A office market in every submarket, has spurred more landlords — who can afford it — to launch major renovations to buildings. Liberty Property Trust is rolling out a redevelopment plan to several of its older buildings in the Great Valley Corporate Center in Malvern, Pa. Davis Cos. and MIM-Hayden Real Estate Funds totally gutted CrossPoint at Valley Forge at 530 and 580 Swedesford Road in Wayne, Pa., and Corporate Office Properties Trust continues to redevelop the former Unisys campus, now called Arborcrest Corporate Campus, in Blue Bell, Pa. Alliance Partners is looking to renovate the Trinity Corporate Center in Malvern.

“I think landlords are recognizing the necessity to refurbish and add amenities that tenants are looking for,” Morrone said.

The office submarkets that do have a concentration of Class A space are doing the best so far this year. Radnor, Pa., is one of them. It has a 1.8 percent vacancy rate and average asking rents have climbed to $36 a square foot, according to Jones Lang LaSalle data. Conshohocken, Pa., is another submarket showing strength with a 12 percent vacancy rate and rents just over $31 a square foot. If that holds and the right anchor tenant comes along, it will likely means Oliver Tyrone Pulver Corp. finally kicking off the construction of Seven Tower Bridge.

The markets with the highest vacancy rates are Blue Bell/Plymouth Meeting at 25.4 percent, Bucks County with 23.9 percent, and King of Prussia at 20.3 percent, according to Newmark Grubb Knight Frank data.

Source; Philadelphia Business Journal