Philadelphia total office space availability grows by 2.5 million square feet throughout 2020
The increase in sublease space accounts for just 27% of the total gain, though this share could grow
Office space availablity
Year over year, the total amount of available office space listed across the region grew from around 26 million square feet to 28.5 million square feet, a 9.6% increase. In the Philadelphia market, direct space listings are driving this trend, representing 73.0% of the net increase in availability. All told, the region’s supply of direct available space grew by 1.8 million square feet, while sublease listings expanded by 670,000 square feet.
Delaware managed to deviate from the regional trend, ending 2020 with slightly less available space than at the end of 2019. Like the rest of the region, it saw sublease space tick up, but direct available space decreased slightly, driven in part by Amtrak’s acquisition and occupation of The Renaissance Center in Downtown Wilmington and robust market activity in the northern New Castle County suburbs.
Philadelphia’s PA suburbs saw the largest bump in sublease space as several corporations contracted or moved out of the market (notably, Hamilton Lane announced it would sublease a floor of its yet-to-be-completed headquarters in Conshohocken). But it was the CBD that saw the biggest jump in direct listings, with the Wanamaker Building facing more than 400,000 s.f. of potential departures.
The pressing question is how real many of these availabilities are. Many tenants remain understandably reluctant to make major real estate decisions in an environment where so much remains unknown about reentry and vaccination timelines. Some number of these availabilities are likely just testing the market. If leasing activity remains well below historic levels in 2021 as it did in 2020, some firms may have little choice but to retain their spaces or wait until activity picks up to unload excess square footage. In the meantime, some may decide that rethinking their existing footprints is actually the best course of action going forward.
Perhaps more importantly, the degree to which firms might pivot to different strategies of working and how much space they will need as a result will vary widely by industry. Within the region, recent headlines have highlighted clear trends in some sectors, with law firms overwhelmingly contracting and life sciences firms eagerly expanding. But for others, the future remains more open-ended.
JLL anticipates a relatively modest reduction in the net demand for overall office space in the coming years: an increase in working from home will suppress demand for some tenants, but an appetite for less dense office layouts and the inevitable job growth that comes with economic recovery will drive increased demand for select industries. If companies embrace a more dispersed model, then suburban locations may stand to reap benefits. If companies seek to meet their workforces where they choose to live, then shifts in the office landscape may be slow to emerge while we wait to see the net effect of residential migration during and after the pandemic.