Philadelphia CBD Development
This report will determine the viability of a proposed investment in a 7.5 million dollar investment in a class A office building in downtown Philadelphia, Pennsylvania. The building will have 60,000 rentable square feet, renting at 17-19 dollars per square foot.
The office market in the Philadelphia central business district (CBD) is currently experiencing a downturn. Since 1990, nearly 2,100 people per year have left the downtown (Gillen). There is little evidence to suggest that this downturn will be reversed in the near future. Overall, Philadelphia enjoys a healthy economy, with a March 2004 unemployment rate of 5.5%, and a civilian labor force of 2,488,500 individuals (U.S. Department of Labor).
The average rental rate for the CBD from the first quarter of 2002 to the first quarter of 2004 has remained steady, hovering close to $24 per square foot. The vacancy rate for the CBD has also remained relatively steady at close to 14%. While suburban rental rates have remained steady from the first quarter of 2002 to the first quarter of 2004 (at close to $24 per square foot), vacancy rates have been on the rise. During the first quarter of 2002, vacancy rates in the suburban market were close to 17%, but rose to close to 24% by the first quarter of 2004 (Cushman & Wakefield).
Cushman & Wakefield note that the first quarter of 2004 saw competition between "landlords of class A and B. properties to retain tenants looking to relocate," suggesting further competition may be an issue in the CBD. Further, there seems to be a demand for class A properties and mid-rise buildings in the Southern New Jersey region. This is illustrated...
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