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University City’s office rent growth is the 5th fastest in North America

The price of office space in the Philly neighborhood grew nearly 13% between 2019 and 2021, per CBRE. Contrast that to stagnation in Center City.

A rendering of the Schuylkill Yards, a University City development project, on view from 30th Street Station. (Image courtesy of Schuylkill Yards)
University City’s office market has been exploding in the past few years.

Case in point: There were nearly 30 major development projects in the works as of 2019, adding 900,000 square feet of space to its inventory. But a new report from commercial real estate firm CBRE shows that the price of rent in this neighborhood is also growing quickly.

The tech industry’s continued growth, even during the pandemic, is leading a rebound in office leasing activity across the US, CBRE said. Tech companies made up a 22% share of office leasing activity in the second and third quarters of this year, up from 17% for all of 2020.

Between Q3 of 2019 and of 2021, you can see University City’s quick growth. In 2019, the neighborhood’s average asking rate was $39.40 per square foot. In 2021, rent prices have grown to $45.74 per square foot, the CBRE report shows. The neighborhood also has one of the lower availability rates for office spaces, at 7.3%.

This trend tracks with other tech “submarkets” — neighborhoods or areas within cities, often near universities or research hubs. This year, University City lands in the fifth spot of the top growing submarkets in North America. Its rent price growth was 12.8%, just behind areas like Tempe, Arizona; the Downtown West neighborhood in Toronto; Lake Union of Seattle; and Oakland in Pittsburgh.

Read the report

The growth was a natural progression following the years of development in the area to accommodate the life sciences and tech companies setting up shop in the neighborhood, said Scott Miller, who leads CBRE’s Tech and Media Practice in Greater Philadelphia.

“There’s been a lack of available real estate in that area, and now a lot of these buildings are new,” he told Technical.ly. “A new building demands a higher rent rate, and it elevates the tide.”

This growth in price will likely steadily continue, Miller said, as the life sciences industry here continues to grow, as does the desire of companies to be near the talent pools at Drexel University and University of Pennsylvania. US tech employment is now exceeding its pre-pandemic levels by 3.3%, only being surpassed by life sciences, which has grown 6.9%.

“The talent pool generated by universities in this submarket and its proximity to 30th Street Station continues to attract top technology companies, and we expect the submarket to continue to gain momentum,” Miller said.

Center City is seeing a different story. Philadelphia’s overall rent growth has slowed to 2.4% between 2019 and 2021. In Q3 of 2019, Center City office spaces were fetching $33.62 per square foot, CRBE data show, whereas in Q3 of 2021, it’s $33.18 per square foot. And compared to the low vacancy rates in University City, Center City — particularly buildings in the Market East area — have about 15% vacancy.

It’s likely the consequences of many companies’ decision to go partially or fully remote or downsize their spaces because of the ability to work remotely, Miller said.

“You will see two very different stories play out. It’s been a tough slog for office market there, the exists of some major companies have been a really tough go,” Miller said. “But you cross the river and see a different story over in University City.”

Companies: CBRE

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