These are trying days for Philadelphia's downtown office market. Class-A office vacancy rate in the CBD sits at 14.4%, below the national average but the highest level in three years, according to CoStar Group Inc. Now, three separate office developments are on the drawing board, including a $700 million world trade complex that would add 2.3 million sq. ft. of space. But local real estate professionals remain skeptical about if, or when, any of these proposed developments will be built.
The three planned projects include: World Trade Square at Old City Harbor, a 4 million sq. ft. trade center complex; One Pennsylvania Plaza, a 1.2 million sq. ft. office tower; and Cira Centre, an 800,000 sq. ft. office building.
A world trade complex in Philadelphia could spur huge economic growth for the region and be a catalyst for the long-awaited redevelopment of the city's waterfront. However, the project's lack of lease commitments and continued weakness in the office market present a problem for Carl Marks & Co., which is developing the project through affiliate Waterfront Renaissance Associates (WRA).
“I don't see the demand presently for these towers,” says Matt Feeney, a principal with CRESA Partners in Conshohocken, Pa., referring to the three proposed projects. “If one of these gets launched, it's going to be by a company vacating a tower in the city, and that's going to leave a hole.” Though Feeney believes a world trade complex would help revitalize the waterfront, he questions when it's actually going to be developed.
The world trade complex has an advantage over the competing office projects, notes Greg West, executive vice president of Colliers Lanard & Axilbund in Philadelphia. “It's not like the first tower is 1 million sq. ft.,” he says. Indeed, the first phase of development calls for 400,000 sq. ft. of office space at the world trade complex. West believes the smaller size of the building will it easier to find a lead tenant, says West.
In addition, the complex has received Keystone Opportunity Zone (KOZ) status. Commercial tenants occupying KOZ-designated sites are exempt from various state and local taxes, including income and real estate taxes until 2013, perhaps longer. Cira Centre, to be developed by Brandywine Realty Trust of Plymouth Meeting, Pa., also is in a KOZ-designated area. Liberty Property Trust of Malvern, Pa., which plans to build One Pennsylvania Plaza, does not have KOZ status for its site.
At least two of the proposed projects are lagging behind their initial timetables. Groundbreaking for the world trade center was expected to occur last summer, and construction of One Pennsylvania Plaza was expected to start in May 2002. Officials at Brandywine were unavailable for comment on Cira Centre's schedule.
World Trade Square would occupy a 5.3-acre site along Columbus Boulevard in the city's Central Riverfront business district. The project's master plan — unveiled in March — depicts the 400,000 sq. ft. office building, two office towers totaling 1.9 million sq. ft.; a 396-unit luxury apartment tower; 118,000 sq. ft. of retail; and parking garages for 2,100 cars.
Plans for the complex received a boost in 2001 when the Delaware River Port Authority announced that it would put up $8 million in loan guarantees and make a $6 million capital investment in the first, 18-story office building. The agency estimates that the complex at full build-out could create up to 10,500 jobs, and generate up to $2.4 million in annual sales tax revenues.
The developer's rewards could be similarly rosy, says Martin Schiffman, managing director of Carl Marks & Co. He says world trade center facilities command rents that are about 20% higher than those of competitive buildings.