Ever since One Liberty Place surpassed the height of Billy Penn atop City Hall, Philadelphia’s skyline has been on the rise. Next year, it will be even taller with the opening of the Comcast Technology Center, the tallest tower in the city and state of Pennsylvania.
But while Philly has experienced a recent explosion of trophy towers and class A buildings, its skyline still has plenty of catching up to do with the rest of the U.S. From the glass half full perspective, Philly still has room to grow.
That’s according to a new Skyline report released by the commercial real estate firm JLL, which took a deep dive into various U.S. cities’ skylines and the buildings that make them up. In the case of Philadelphia, this ranges from The old Post Office building at 2970 Market to the Comcast Technology Center.
“Things are really good by Philadelphia standards, but if you take a moment and look outside of region itself, we do have a long way to go,” said Lauren Gilchrist, vice president and director of research at JLL Philadelphia. “There is opportunity here that we’ll continue to see as our economy and population expand.”
Here are some of the key findings from the report:
Philly’s building boom is impressive, but not groundbreaking
The report found that there is about 2.1 million square feet of new construction underway in Philly that’s set to change its skyline. “We only have about 7 percent of the entire country’s skyline located in our market, which is a small percentage overall,” noted Gilchrist.
New York, meanwhile, makes up 34 percent of the country’s new 35 million square feet of skyline construction.
Office vacancy rates are quite low
On average, the country’s office vacancy rates this year are holding at about 12.9 percent. Philly’s skyline offices, meanwhile, are about 8.9 percent vacant, showing that it’s a considerably tighter market here than the country as a whole.
That’s a result of a few things, including the fact that Philly hasn’t seen as much speculative construction as other markets have, says Gilchrist. In addition, Philly seems to have a high pre-leasing rate than in other U.S. cities.
Comcast Technology Center, which acconts for 1,334,000 million square feet of the city’s skyline, of course, is a bit of a different beast, since it’s already 100 percent leased by its namesake company while still under construction.
Skyline rent is really, really cheap here
The average asking rent per square foot in Philadelphia is $31.18. While that is a 5.4 percent increase from 2016, it’s extremely low compared to other major U.S. cities. (In fact, a separate JLL report took note of Market East being the most affordable retail corridor in the nation.)
Take San Francisco, for example, where average rent is more than double Philly’s at $76.11 per square feet. That’s even cheaper than New York’s $87.90 and Washington’s $83.09.
It’s a good time to be a landlord
With low vacancy rates and 6 million square feet of office space expected to rollover in the next three years, landlords will likely be pretty busy for 2017 and 2018, according to the report.
“Six million square feet of existing tenants currently occupying space in the market have the option to renew in place or relocate,” said Gilchrist, “so that means a lot of transaction and activity coming down the pike.”
Gilchrist noted, however, that there has been a slowdown in leasing rates in the first and second quarters of 2017. “We are starting to see some evidence of downsizing simply because of the expiration of 10-year leases that were signed prior to the previous recession, when the market was going gangbusters nationally from an economic perspective.”
One of the sure-fire ways to tell that a city’s market is truly “hot” is by the amount of top buyers or foreign buyers investing in local property. Philly hasn’t quite made that leap yet, said Gilchrist. “Even though locally it feels like the market is going gangbusters and is on fire, looking at top buyers around the country and where they’ve bought, we really only have one of them, which is Shorenstein,” Gilchrist noted. “Philadelphia has historically struggled to attract institutional capital to this market.”