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While PA suburban office sales have historically out-performed the city, the gap is narrowing as new capital focuses on the CBD and pricing moderates elsewhere

• JLL analyzed 58 Class A offices sales in Philadelphia and the Pennsylvania suburbs, deriving a weighted average sales price for each year. The findings reveal that the suburbs are gradually losing their pricing lead as more sophisticated out-of-market buyers make increasingly bigger bets on CBD real estate.

• The Pennsylvania suburbs have generally been a stronger sales market throughout this and previous market cycles, but price compression has narrowed the gap: office buildings outside city limits achieved average pricing 57.5 percent higher in 2014 (nearly $100 per square foot), but by last year came out only 10.3 percent ahead.

• In 2016, the CBD outperformed the suburbs thanks to a weighted average sales price of over $250 per square foot. Korea Investment Management and Zurich Insurance’s purchases of University City assets explain much of that year’s spike. Without those two sales,  the CBD 2016’s weighted average sales price would have been $195 per square foot. With KIM’s second acquisition earlier this year, those trades no longer seem as anomalous: year-to-date weighted average pricing in the city sits at $278 p.s.f. thanks to the trade of 5 Crescent Drive for $628 p.s.f.

• There are too few sales to date to say anything conclusive about the trajectory of 2018 outside Philadelphia. It remains to be seen if the buyer pool will continue to deepen and diversify in the city, or if some of these newly arrived investors might begin to expand into the suburbs, helping to propel pricing upward once again. 

Source: JLL Research

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