University City’s office rental growth is fifth fastest in North America
The university city’s office market has exploded in recent years.
Case in point, there were nearly 30 major development projects in the works in 2019, adding 900,000 square feet to inventory. But a new report from a commercial real estate company CBRE shows that rental prices in this quarter are also rising sharply.
The continued growth of the tech industry, even during the pandemic, is leading to a rebound in office rental activity in the US, CBRE said. Tech companies accounted for 22% of office rentals in the second and third quarters of this year, up from 17% for all of 2020.
Between the third quarter of 2019 and 2021, you can see University City growing rapidly. In 2019, the neighborhood’s average asking price was $ 39.40 per square foot. In 2021, rental rates soared to $ 45.74 per square foot, the CBRE report shows. The neighborhood also has one of the lower availability rates for office space, at 7.3%.
This trend follows with other tech “sub-markets” – neighborhoods or areas within cities, often near universities or research centers. This year University City ranks fifth among the fastest growing submarkets in North America. Rental rate growth was 12.8%, just behind areas like Tempe, Arizona; the Downtown West neighborhood in Toronto; Seattle Maritime Association; and Oakland in Pittsburgh.
The growth was a natural progression after years of developing the area to accommodate the life science and technology companies that were locating in the neighborhood, said Scott Millerwho leads CBRE’s technology and media practice in the greater Philadelphia area.
“There was a lack of available real estate in this area, and now a lot of these buildings are new,” he said Technically. “A new building requires a higher rent and lifts the tide.”
That price hike is likely to continue steadily, Miller said as the life sciences industry continues to grow here, as does companies’ desire to be close to talent pools Drexel University and University of Pennsylvania. Employment in the tech sector in the US is now 3.3% above pre-pandemic levels and only beaten by the life sciences, which are up 6.9%.
“The talent pool generated by universities in this submarket and proximity to 30th Street Station continue to attract technology leaders, and we expect the submarket to continue to gain momentum,” said Miller.
Center City sees a different story. Overall rental growth in Philadelphia slowed to 2.4% between 2019 and 2021. In the third quarter of 2019, Center City office space hit $ 33.62 per square foot, CRBE data shows, compared with $ 33.18 per square foot in the third quarter of 2021. And compared to the low vacancy rates in University City, Center City – especially buildings in the Market East area – has around 15% vacancy.
It is likely the aftermath of many companies’ decision to part or completely separate themselves remotely or downsize their premises because they can work remotely, Miller said.
“You will see two very different stories play out. It’s been hard work for the office market there, having some big companies in existence has been a really tough road, ”Miller said. “But you cross the river and see a different story over in University City.”