First Quarter 2014

Issue Thirty-Three

1Q 2014 Recap

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Contact:

Scott M. Miller
+1 610 251 5187
scott.miller@cbre.com
Licensed: PA

Joseph S. Conwell

+1 610 251 5101

joseph.conwell@cbre.com
Licensed: PA

James P. Kelley
+1 610 251 5156
james.kelley@cbre.com
Licensed: PA

Rija R. Beares
+1 610 251 5153
valerija.beares@cbre.com
Licensed: PA

CBRE, Inc.
1200 Liberty Ridge Drive
Suite 320
Wayne, PA 19087

Licensed Real Estate Broker 

RE: Philadelphia Suburban Office Market - First Quarter 2014

What A Difference Seven Years Makes.  
 

A fundamental shift is pending in the supply and demand dynamics of the office space market which will not favor tenants.  Here’s why:

Over the past two years in our quarterly updates we have repeatedly pointed to the absence of new building construction in the suburbs (seven years without new construction).  We have frequently mentioned that true class “A”  buildings (newer, well located and managed) are highly occupied and have limited available space. For our clients (100% occupiers; not landlords), these conditions mean it requires more time, thought and effort to find the right space solution.  An additional complicating factor for occupiers has been the change in space utilization since 2007, leading to functional obsolescence of the older inventory of office buildings.

Over the course of the last seven years the lack of new building inventory has been on an even pace with job growth in the Philadelphia region leading to a relative balance of supply and demand.  This will change and the demand for modern office space in class “A” buildings will pick up in a fast and furious fashion. The older office building inventory will not be an acceptable alternative for businesses. 

Since it takes three years to design, finance and construct new office buildings, the table is set for a two to three year period where demand for modern space significantly exceeds supply.  For the first time in many years, landlords with quality buildings will have leverage in lease negotiations. 

While it is impossible to predict exactly when job growth will outpace the supply of class “A” space, we are confident in stating it will occur within the next 24 months.  Time is your best friend when it comes to managing the risk associated with heated real estate markets.  If you have a lease expiring or need to grow your operation in the next two years, the time to begin the strategic planning process is now.

Our team would like to thank the following clients for their support in the first quarter of 2014:

• CBRE Econometric Advisors Market Report • First Quarter 2014 Market Index Brief