12 | State of Center City

12

Office | David Fonda Street 1600 Market

The commercial office sector was profoundly disrupted by the In the first quarter of 2020, based on momentum from 2019, March 2020 public mandates requiring telework in response rents continued to rise in Center City to $33.80 per square foot. to the pandemic. Building managers and tenants moved Positive absorption of 142,509 square feet lowered vacancy to quickly, retrofitting space, upgrading air-handling systems and 12.9%. During the second quarter, following the stay-at-home instituting new cleaning and health safety protocols in lobbies order, vacancy inched up to 13%, ultimately peaking at 15.4% by and common areas. Most imagined the interruption would be a year-end, as 536,536 square feet of office space was vacated. matter of weeks, a few months at most. However, when infection However, the surge in vacancy during the fourth quarter was rates persisted through summer and spiked in the fall, longer- due less to unanticipated departures, and more a byproduct of term questions began to emerge about the future of work in downsizing planned prior to the pandemic, including Children’s office buildings. Hospital of Philadelphia and the Army Corps of Engineers vacating space in the Wanamaker Building. Most firms adapted quickly to virtual meeting platforms. Following telework mandates, throughout 2020 no more than Throughout Center City, remote work enabled nearly all tenants 10% of employees on average came into their offices. The to operate and pay rent, while property owners accommodated absence of 115,000 professional, tech, business and financial those experiencing financial challenges, executing some services workers and thousands of non-essential health care temporary extensions and adapting to uncertain circumstances. and education employees, caused SEPTA ridership, parking Many new deals incorporated flexibility. For example, Blank garage occupancy and pedestrian volumes on Center City Rome executed a lease that gives them the ability to occupy sidewalks to plummet, posing significant challenges for between 100,000 and 196,000 square feet over a 16-year term restaurants and retail. Many cleaning, security and other without penalty. operations personnel in office buildings were furloughed.

CENTERCITYPHILA.ORG Center City District & Central Philadelphia Development Corporation Office| 13

Major new developments provided grounds for optimism, Center City remains an affordable location for business, including Parkway Corporation's start of construction for a centrally located and well connected by highway and transit new headquarters for Morgan Lewis at 2222 Market Street and along the Northeast Corridor with excellent national and global National Real Estate Development's construction of a 19-story connections through Philadelphia International Airport. The specialty care pavilion for Thomas Jefferson on the 1100 block region hosts a significant concentration of educational, medical of Chestnut Street. Philadelphia’s strength in life sciences and research institutions that create talent-rich labor markets, also extended beyond University City with conversions from supporting the highest concentration of jobs and educated office space to new lab space at both The Curtis and 1500 workers in the region. Spring Garden. Philadelphia offers both a high quality of life and housing While telework quickly became the primary mode for the office affordability. Home prices in the Philadelphia region, according sector, there are many reasons to suggest it will not become the to the Bureau of Economic Analysis, are close to the national norm. Much can be achieved remotely. However, interaction with average, but well below prices in Washington, New York and clients, collaboration with colleagues, creative brainstorming, Boston. Most important, all of the advantages of density, mentoring and professional development work best face-to- challenged by the pandemic, will quickly reassert themselves face. Many of the best new ideas emerge outside planned as the health emergency recedes. What is required to ensure gatherings. They are sparked by serendipitous conversations Center City’s continued growth is a broad coalition of civic in the office, on the street, in restaurants, parks and leaders to actively promote Philadelphia as a business outdoor cafes. location, build on the momentum of the Ready Set Philly initiative and not passively accept remote work as the norm. This is where Philadelphia excels. A dense, compact and In addition, City government needs to recommit to promoting walkable downtown enables you to run into colleagues, strong and inclusive economic growth through tax reform, competitors or friends on the way to lunch. More than 40 million increased investment in Black- and brown-owned businesses, square feet of office space provides a broad range of workplace neighborhood commercial corridors and programs that improve options from trophy 21st-century towers, to more affordable quality of life and overall competitiveness. renovated historic warehouses to highly flexible coworking spaces.

Center City Office Market Trends, 2020

Q1 2020 Q2 2020

TOTAL ASKING TOTAL VACANCY NET ABSORPTION TOTAL ASKING TOTAL VACANCY NET ABSORPTION SUBMARKET RENT (PRICE/SF) RATE (SF) RENT (PRICE/SF) RATE (SF)

East Market $29.81 10.0% 45,838 $29.65 9.9% 6,660 Independence Square $31.12 15.0% 10,312 $31.18 14.5% 17,023 Walnut/South Broad $30.83 18.3% -27,621 $30.78 18.7% -15,649 West Market $36.14 12.3% 113,980 $35.90 12.6% 12,365

CENTER CITY $33.80 12.9% 142,509 $33.67 13.0% 20,399 Q3 2020 Q4 2020

TOTAL ASKING TOTAL VACANCY NET ABSORPTION TOTAL ASKING TOTAL VACANCY NET ABSORPTION SUBMARKET RENT (PRICE/SF) RATE (SF) RENT (PRICE/SF) RATE (SF)

East Market $30.48 9.5% 22,295 $31.38 15.6% -357,416 Independence Square $31.13 15.7% -59,256 $31.96 17.1% -57,493 Walnut/South Broad $30.89 19.4% -28,117 $30.75 20.2% -33,514 West Market $35.80 13.8% -284,758 $36.31 14.2% -88,113

CENTER CITY $33.76 13.9% -349,836 $34.53 15.4% -536,536

Source: Newmark Knight Frank

Center City District & Central Philadelphia Development Corporation CENTERCITYPHILA.ORG 14 | State of Center City

Center City Philadelphia Office Market, 1985–2020 14

Occupied (SF) Vacant (SF) Occupancy Rate Square Feet (Millions) 50 95%

40 91%

30 87%

20 83%

10 79%

0 75% 7 6 1985 1986 198 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 200 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Note: Data includes only buildings in Center City, not University City, and counts several major, Source: Newmark Knight Frank owner-occupied properties that are not commercially leased.

Central Business District Asking Rents, 2020 Central Business District Occupancy, 2020

San Francisco 97.2% San Francisco $82.38 San Francisco 97.2% San Francisco $82.38 Orlando 92.9% NYC - Midtown $80.11 Orlando 92.9% NYC - Midtown $80.11 NYC - Midtown South 92.1% NYC - Midtown South $78.33 NYC - Midtown South 92.1% NYC - Midtown South $78.33 NYC - Downtown 92.1% Boston $64.85 NYC - Downtown 92.1% Boston $64.85 NMYC - Midtown 91.9% NYC - Downtown $62.12 NMYC - Midtown 91.9% NYC - Downtown $62.12 Sacramento 89.6% Oakland $60.48 Sacramento 89.6% Oakland $60.48 Boston 89.0% Washington $57.49 Boston 89.0% Washington $57.49 NYC - Brooklyn 88.2% NYC - Brooklyn $53.36 NYC - Brooklyn 88.2% NYC - Brooklyn $53.36 Miami 86.2% Fairfield County, CT $49.08 Miami 86.2% Fairfield County, CT $49.08 Philadelphia 85.3% Miami $44.47 Philadelphia 85.3% Miami $44.47 Baltimore 85.2% Los Angeles $43.60 Baltimore 85.2% Los Angeles $43.60 Jacksonville 84.9% San Diego $41.51 Jacksonville 84.9% San Diego $41.51 Washington 84.7% Houston $41.05 Washington 84.7% Houston $41.05 Orange County, CA 84.6% Denver $39.83 Orange County, CA 84.6% Denver $39.83 Portland, OR 83.3% Chicago $37.63 Portland, OR 83.3% Chicago $37.63 Chicago 81.6% Orange County, CA $36.65 Chicago 81.6% Orange County, CA $36.65 Denver 81.6% Philadelphia $34.53 Denver 81.6% Philadelphia $34.53 Atlanta 81.5% Sacramento $33.60 Atlanta 81.5% Sacramento $33.60 Oakland 80.6% Portland, OR $33.21 Oakland 80.6% Portland, OR $33.21 Fairfield County, CT 79.6% Atlanta $33.14 Fairfield County, CT 79.6% Atlanta $33.14 Los Angeles 79.6% Orlando $28.36 Los Angeles 79.6% Orlando $28.36 Phoenix 79.6% Phoenix $27.33 Phoenix 79.6% Phoenix $27.33 San Diego 78.8% Dallas $26.14 San Diego 78.8% Dallas $26.14 Dallas 73.5% Baltimore $23.03 Dallas 73.5% Baltimore $23.03 Houston 73.4% Jacksonville $22.15 Houston 73.4% Jacksonville $22.15

20% 40% 60% 80% 100% $0 $20 $40 $60 $80 $100 20% 40% 60% 80% 100% $0 $20 $40 $60 $80 $100

Source: Newmark Knight Frank Source: Newmark Knight Frank Source: Newmark Knight Frank Source: Newmark Knight Frank

CENTERCITYPHILA.ORG Center City District & Central Philadelphia Development Corporation Boston

Office| 15 Washington, D.C. Chicago Denver Class A Rents, Central Business District Compared to Suburbs, 2020 Oakland, CA Sacramento

Boston Boston 117% Fairfield County, CT Houston Washington, D.C. Washington 78% Chicago 66% Miami Chicago Denver 64% Philadelphia Denver Oakland 59% Orange County, CA** Houston Sacramento 45% Portland, OR Orlando Miami Fairfield County, CT 44% Houston 37% Atlanta* National Average Miami 24% San Diego Portland, OR Philadelphia 23% San Francisco Center City Philadelphia Orange County, CA 20% Phoenix Jacksonville Atlanta Portland, OR 18% Orlando 15% Los Angeles Orlando Atlanta 11% Baltimore Los Angeles San Diego 6% Dallas San Francisco San Francisco 4% Phoenix Phoenix 3% -0.20.1 0.40.7 1.01.3 Jacksonville -3% Jacksonville Los Angeles -4% Baltimore Baltimore -10% -13% Dallas Dallas -14%

-20% 0% 20% 40% 60% 80% 100% 120%

Source: Newmark Knight Frank

Philadelphia's affordability, a byproduct of slow growth and modest demand, can be a central selling point in a campaign to market Center City as a preferred business location throughout the Northeast.

Regional Average Asking Rents, 2020

Price per square foot University City $50.12 The Navy Yard $46.85 Radnor $45.40 Conshohocken $41.06 Bala Cynwyd $34.95 Center City Philadelphia $33.23 King of Prussia/Wayne $31.66 Delaware County $27.85 Plymouth Meeting/Blue Bell $27.63 Malvern/Exton $26.64 Lower Bucks County $25.88 West Chester $25.73 Fort Washington $25.41 Wilmington CBD $24.03 Horsham/Willow Grove $23.67

Source: JLL Research

Center City District & Central Philadelphia Development Corporation CENTERCITYPHILA.ORG 16 | State of Center City

Center City Average Asking Rent Center City Occupancy Rate by Class 16 Dollars per square foot Trophy Class A Class B Trophy Class A Class B $45 $42.71 100%

$40 95% 93.6%

$35 $32.92$3292 $28.97 90% 91.0% $30 86.5% 86.5% $26.77 $28.62 85% $25 85.5% 85.4% $22.49

$20 80% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Note: The increase in average Trophy class rent in 2020 Source: JLL Research Source: JLL Research reflects a significant increase at one building.

While life science tenants have many reasons to cluster in University City, proximity to Thomas Jefferson University and the availability of many affordable and easily adaptable older GIRARD AVE buildings creates an opportunity for Center City landlords.

Greater Philadelphia Spring House Myoderm Global HQ Life Sciences Inventory Innovation Park 100 Progress Dr, Horsham Pipeline Under 727 Norristown Rd, Ambler 65,000 SF 141,000 SF Construction and Proposed Construction/ Protecs Expansion Conversions 3700 Horizon Dr, Upper Merion 74,000 SF

Proposed 1500 Spring Garden 200,000 SF Proposed Partial Conversion

Under Construction ROAD ST Build to Suit B

Under Construction VINE ST Speculative Schuylkill Yards 3025 JFK

Source: Newmark Research 775,000 SF

Cira Centre 2939 Arch 182,000 SF One uCity Square 1 Filbert 833 Chestnut 390,000 SF MARKET ST City Hall 90,000 SF

One South Broad 3.0 University Place Schuylkill Yards The Curtis 1 South Broad 4104 Market 3151 Market 601 Walnut 92,000 SF 240,000 SF 450,000 SF 300,000 SF

Powelton Yard 100 N 32nd 125,000 SF

PINE ST

Navy Yard Iovance Biotherapeutics 2500 League Island 300 Rouse 110,000 SF 136,000 SF CENTERCITYPHILA.ORG Center City District & Central Philadelphia Development Corporation

TASKER ST Office| 17

Significant Office Leasing Transactions in Center City, 2020

MARKET WEST

TENANT BUILDING CLASS SIZE (SF) TYPE

Blank Rome One Logan Square Trophy 196,000 Renewal Army Corps of Engineers 1650 Arch St A 101,000 Relocation Hana Beneficial Bank Place A 50,745 New to Market Passage Bio One Commerce Square Trophy 37,414 Relocation Dechert 1735 Market St Trophy 34,987 Relocation QTC Management One Penn Center at Suburban Station B 29,788 Expansion GrubHub Three Parkway A 28,214 Blend and Extend Evolution Gaming 1500 Spring Garden St B 24,011 New to Market Olin Partnership One Penn Center at Suburban Station B 23,571 Relocation FreedomPay 2401 Walnut St A 14,453 New Lease Ricci Tyrrell Johnson & Grey 1515 Market St A 13,511 Renewal Naulty Scaricamazza & McDevitt One Penn Center at Suburban Station B 12,000 Renewal Bohler Engineering 1515 Market St A 11,350 New to Market Service Employees International Union 1515 Market St A 10,429 Renewal Local 32BJ GIRARD AVE AJO 230 S Broad St B 10,387 Renewal

MARKET EAST

TENANT BUILDING CLASS SIZE (SF) TYPE

Mindspace The Wanamaker Building A 41,277 New to Market Greater Philadelphia Spring House Myoderm Global HQ Life Sciences Inventory Innovation Park 100 Progress Dr, Horsham Weir & Partners The Widener Building A 21,924 Renewal Pipeline Under 727 Norristown Rd, Ambler 65,000 SF 141,000 SF Construction and Imvax The Curtis A 17,000 Relocation Proposed Construction/ Protecs Expansion City Of Philadelphia Aramark Tower A 15,231 Relocation Conversions 3700 Horizon Dr, Upper Merion 74,000 SF BDP International One Washington Square A 13,331 Renewal Hachette Book Group Wells Fargo Building B 11,500 Relocation Proposed 1500 Spring Garden 200,000 SF Proposed Philadelphia Futures Wells Fargo Building B 11,217 New Lease Partial Conversion Thomas Jefferson University Aramark Tower A 10,156 New Lease

Under Construction ROAD ST Build to Suit B Source: JLL Research Under Construction VINE ST Speculative Schuylkill Yards 3025 JFK

Source: Newmark Research 775,000 SF

Cira Centre 2939 Arch 182,000 SF One uCity Square As the challenges of 2020 recede, the Center City office district 1 Filbert 833 Chestnut 390,000 SF MARKET ST City Hall 90,000 SF can grow beyond a pattern of renewals and lateral moves to become a place that attracts in-moving companies and new One South Broad 3.0 University Place Schuylkill Yards The Curtis 1 South Broad 4104 Market 3151 Market 601 Walnut firms in expansion mode. 92,000 SF 240,000 SF 450,000 SF 300,000 SF

Powelton Yard 100 N 32nd 125,000 SF

PINE ST

Navy Yard Iovance Biotherapeutics 2500 League Island 300 Rouse 110,000 SF 136,000 SF Center City District & Central Philadelphia Development Corporation CENTERCITYPHILA.ORG

TASKER ST