After three quarters of holding steady, the region’s office vacancy rate may have peaked as demand seems to have stabilized, at least in the short term, CRBE reported.
The real estate brokerage and property management firm said the absorption of office space in the fourth quarter was slightly positive. Aiding the absorption figures was WSFS leasing nearly 31,000 square feet at 300 Bellevue Parkway as it consolidates office space. It was the largest lease reported by CBRE in its fourth quarter report.
Northern Delaware’s office vacancy rate was 23.1%, a percentage point higher than the regional figure. The northern Delaware figure was negatively affected by a 32.5% vacancy rate in center city Wilmington. The lowest vacancy rate was in western New Castle County at 8.5%
While asking rents continued to push up modestly, a look at recent leases signed revealed pricing continuing to soften in the face of high vacancy rates.
While companies associated with traditional office needs continued to downsize due to more staff working at home, at least part-time, other sectors, such as manufacturing, offset some of the loss.
After starting the year with recovery seemingly several quarters off, the Philadelphia office market reached or is close to peak vacancy. Trends such as aggressive shedding of space, steep negative absorption, and sudden spikes in vacancy were waning as the vacancy rate remained at 22.1% during the past three quarters of 2023. However, during the most recent quarter, absorption was slightly positive, the first instance since mid-2022, and the average asking rent was again on the rise.
Though asking rents moved upward for a time, a look at signed leases during 2023 reveals a different picture as rising interest rates made tenant improvement allowances, and free rent in leases became more expensive and led to past rent reductions, the report indicated.
The CBRE report includes the Delaware Valley and the Lehigh Valley.
