Downtown Philadelphia Term Paper

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Philadelphia CBD Development

This report will determine the viability of a proposed investment in a 7.5 million dollar investment in a class A office building in downtown Philadelphia, Pennsylvania. The building will have 60,000 rentable square feet, renting at 17-19 dollars per square foot.

The office market in the Philadelphia central business district (CBD) is currently experiencing a downturn. Since 1990, nearly 2,100 people per year have left the downtown (Gillen). There is little evidence to suggest that this downturn will be reversed in the near future. Overall, Philadelphia enjoys a healthy economy, with a March 2004 unemployment rate of 5.5%, and a civilian labor force of 2,488,500 individuals (U.S. Department of Labor).

The average rental rate for the CBD from the first quarter of 2002 to the first quarter of 2004 has remained steady, hovering close to $24 per square foot. The vacancy rate for the CBD has also remained relatively steady at close to 14%. While suburban rental rates have remained steady from the first quarter of 2002 to the first quarter of 2004 (at close to $24 per square foot), vacancy rates have been on the rise. During the first quarter of 2002, vacancy rates in the suburban market were close to 17%, but rose to close to 24% by the first quarter of 2004 (Cushman & Wakefield).

Cushman & Wakefield note that the first quarter of 2004 saw competition between "landlords of class A and B. properties to retain tenants looking to relocate," suggesting further competition may be an issue in the CBD. Further, there seems to be a demand for class A properties and mid-rise buildings in the Southern New Jersey region.

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This is illustrated by a movement to quality class A space that has pushed some companies to high-end flex buildings in the last year and a half (Cushman & Wakefield).

Overall, the CBD "demonstrated a steady increase in business activity and capital investments" (Cushman & Wakefield) during the first quarter of 2004. In contrast, the Suburban Philadelphia region was characterized by "tepid business growth and lackluster demand for office space" (Cushman & Wakefield).

The proposed office building has several competitors currently under construction during the first quarter of 2004. A 90,000 square foot building in the Southern Route 202 Corridor is estimated to be complete, while a 75,000 square foot building is set for completion in the Blue Bell/Ply. Mt./Ft. Walsh submarket in the second quarter of 2004. In addition, a 63,000 square foot building is set for completion in the third quarter of 2004 in the Southern Bucks County submarket (Cushman & Wakefield).

The creation of any new downtown office building must take into account the potential impact of the current plans for the addition of the Cira Centre and One Pennsylvania Place to Philadelphia's downtown core. These two new office towers are slated to be built in the city's Keystone Opportunity Improvement Zones (KOIZs). These KOIZs are site-specific designations that offer the owners and occupants significant relief from a number of state and local taxes. KOIZs were created to try to redevelop and revitalize areas in economic distress, but have recently been suggested as ways of spurring new development (Gillen). Cira Centre and One.....

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