20A — January 17 - 30, 2014 — Mid Atlantic Real Estate Journal


2014 F orecast John Morrissey, Jackson Cross Partners

Jackson Cross reports on national & regional office & industrial markets


continue due to tenant prefer- ences that require product de- sign changes such as increased parking ratios. New product rents as a percentage of overall market is not enough to materi- ally affect the average. There are a number of fac- tors effecting demand that do bear watching. “Densification” is occurring everywhere in the nation. While a few years ago it was common to see an aver- age of 250 s/f per employee, today it is not uncommon to see an average of 175 s/f per employee, and some plans are seeing the average s/f provided

per employee as low as 125 s/f per employee. “The impact of technology on office space design and its usage is a major contributor to lower demand. More and more companies are permitting their employees to work remotely. Telecommuting is affecting office space use. Personally, I have noticed, reduced automo- bile traffic volume on Fridays and Mondays. “Generation “Y” lifestyle changes are also having an ef- fect on the design of more Live, Work, Play developments. The trend to increase development

around transportation hubs continues. Two examples in the Philadelphia area are the increased development around the new slip ramp of the Penn- sylvania Turnpike at Route 29 and the CIRA II development located near 30th St., which includes residential, retail and office components. If and when light-rail public transportation becomes available at the Navy Yard, that project will see a further increase in demand on what is considered a highly desirable location. “We are also seeing older office properties being “re- purposed”. For instance, in Center City Philadelphia in the past five years, three Class B office buildings have been redeveloped for residential or educational use. “Another major occurrence in our region has been the sale by REITs of their non- core suburban office portfolios. Mack-Cali, Liberty Property Trust and Brandywine Realty Trust have announced the sale of or sold a total of 3.3 million s/f of suburban office buildings. As the demand increases for “urban” centers, with live, work and play design elements, these once sought after suburban midrise projects are becoming functionally obsolete, and to be repurposed. “On the industrial side, va- cancy rates nationally stand at 8.3% and 9.2% regionally. Triple net rental rates are $5.31 per s/f nationally and $4.52 in the region. As was the case with office space, both national and regional industrial rental rates have seen little change for years. New product pricing is clearly above the average. We expect to see additional speculative construction in 2014 and 2015. Morrissey notes that, “The in- dustrial market is ‘hot’.” There is solid demand for institutional grade industrial product. E- commerce is having an effect upon the industrial market as those firms requiring “big box” logistic centers are interested in modern facilities that are close to major population cen- ters so that they shorten the supply chain and provide the opportunity for same day or next day delivery. Due to the specific requirements and the size of these facilities, most of these buildings need to be custom built. In our region, areas that are seeing the most Continued to page 28A

ILMINGTON, DE — “As we look at average rental rates

national rates,” said John Morrissey of Jackson Cross Partners at their annual Real Estate Forecast Meeting at The Hotel DuPont in Wilmington, Delaware. “Class A office space nationally has a 12.8% vacancy rate, while in our region the vacancy rate is 12.3%. Class B office space has a vacancy rate of 12.3% and locally we are at 12.2%. “Rates for new product in submarkets with strong funda- mentals including infrastruc- ture have spiked. The gap in rates between new product and existing has widened and will

both nation- ally and lo- cally, one fact stands out… they have not ma t e r i a l l y increased in years. There has been no d i s cern i b l e

John Morrissey

increase nationally in the past decade and the same is true in the last five years regionally. “Vacancy rates in our local office markets closely mirror

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