6A —April 22 - May 19, 2022 — Spring Preview — M id A tlantic Real Estate Journal
www.marej.com
P ennsylvania B roker
By Todd C. Monahan, Executive VP&Managing Director of WCRE / CORFAC International Center City Philadelphia and the return to office
A
s the Covid Pandemic begins to subside, many questions about how
is designed, perhaps providing fewer dedicated offices and workstations? Or instead, will employers create more open, collaborative dynamic spaces, knowing most of the heads down quiet work will be per- formed at home or elsewhere? How do HR departments create policies and solutions allow- ing them to recruit and retain talent in one of the most com- petitive job markets in recent memory, without alienating or disenfranchising long term employees? Lastly, will dense urban office markets like Cen - ter City Philadelphia rebound to pre-pandemic levels, or will
a reduction in demand create unhealthy markets with declin- ing rents and over leveraged properties unable to compete? Currently the Center City Philadelphia market is showing resilience and strong signs of life, despite the fact that daily headcounts in major downtown office towers remain below an average of 30%. Tenants continue to pay their rent ob- ligations and Landlords have yet to feel a major impact on their assets. Rents have held firm, although Tenant Improve - ment Allowances and free rent concessions have increased 10-15%. The Philadelphia CBD
is currently 15% vacant. Any- thing below a 10% vacancy rate becomes a Landlord’s market, where Tenants (Employers) have little leverage. 10-12% is a more balanced market. So at 15%, conditions have softened slightly but not to any alarming point. There is activity, demand for new space and leases are get- ting signed. In fact, over 1M s/f of office requirements are in the market seeking solutions. There are several significant subleases on the market with lease expira - tions beyond 5 years, but that is often the case in markets with less certainty. There are also many small and short term sub-
leases on the market where it is unclear whether the Tenant will let the lease expire turning that space into additional vacancy, or will they retain the space if the sublease exercise proves unsuccessful, so they still have an office for employees to return to several days a week. As major employers such as Comcast, Independence Blue Cross and others, begin bringing people back to the office, many of these questions will get an- swered over time. But bringing people back has not proven easy, as Covid variants emerge and employees show a reluctance to return to long days of commut- ing, riding mass transit, paying to park, etc. Some employers are offering incentives to bring employees back, offering to pay for their monthly SEPTA pass, free in-house catered lunches, gym memberships and the like. Clearly employers want people to return at least several days per week, critical to maintain culture, collaborate, innovate and train young talent. Many people have predicted the demise of cities throughout history. From the fall of Ancient Rome, the Cholera Epidemic in London, the horrible condi- tions of NYC in the 1970’s, and after 9-1-1, many naysayers said people will leave cities in droves. We are hearing the same negative prognostications now, that cities are in trouble. But cities exist for a reason. Human beings are social ani- mals, we yearn for face to face interactions, spontaneous meetings and engaging with focus. New uses also emerge. Philadelphia was once full of factories which no longer exist. We adapt and reuse. That is occurring now as an explosion in demand for lab and life science space has emerged. The Gene & Cell therapy re - search emanating from CHOP and Penn has spurred incredible demand for lab space. Several office buildings have already converted some space to meet this demand, such as Brandy - wine’s Blabs at Cira and the Cutis on Washington Square. Make no mistake, Center City Philadelphia will come back, adapting and responding to changes in employee living pat- terns and new and exciting uses for office space. Todd C. Monahan is Executive VP & Manag- ing Director of WCRE/ CORFAC International in Philadelphia PA. MAREJ
we work and from where remain unan- swered. Will total demand for space de- cline and if so to what degree? How do employers
Todd C. Monahan
retain valuable employees, pro- vide the flexibility employees are demanding, while main- taining productivity? As em- ployees return to work, will em- ployers change the way space
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