Why would a company or landlord spend the estimated $500/sq. ft. (SF) it would cost to build a new high-rise office tower in Philadelphia, when it could buy serviceable Class A buildings for a quarter or a third of that cost, or lease space for maybe 5% as much per year?
"For a company looking for something new, green and transfomative, they may pay extra," insists Glenn D. Blumenfeld, of the Radnor office of Tactix Real Estate Advisors LLC.
He's in the business of selling corporate tenants on new space, and is busy these talking to the handful of big companies known or rumored to be looking for big space in town. See if he can convince you:
"First, many companies are consuming a lot less space per employee, so they can usually generate meaningful efficiencies if they've been in their current space for 10 years or more." See, for example, GlaxoSmithKline, which just shed a complex that once covered 800,000 SF south of the Parkway museum district, for a new 205,000 SF Liberty Property Trust building at the ex-Navy Yard in South Philly.
"Second" is what our philosophical friends might call the Dialectical or Counter-intuitive Argument: "Rental rates for the better buildings in town are in the $30s now," which is so low (vs. New York, Washington or Boston) that it's driving office landlords to convert properties to apartments, which means "office supply is contracting, thereby bolstering rents."
This is particularly happening in University City, the highest-rent office neighborhood in Philadelphia, where "the growth of our universities and health care systems (has resulted in the schools) freeing up space on their land-constrained campuses by moving admins nad office folks into office buildings in Center City." Indeed, Drexel, Penn and CHoP have all acquired new properties east of the Schuylkill -- even as "non-household-name companies" are paying high rents just to be in UCity near the hospital and U headquarters.
"Also consider that Philly is an incredibly cheap office market." For Comcast to lease another Comcast Center-type property in New York (in case newly-obtained Rockefeller Center isn't enough), "they'd be paying rents above $150/sq ft."
And there's just that certain-something that makes a cool neighborhood worth the extra cash -- see for instance the Navy Yard, with Glaxo and Urban Outfitters and other new tenants: "Certainly (those firms) could have found cheaper existing space in the suburbs... Why did they do it? They are getting a unique campus environment with a hip urban feel" and low-rise construction.
"Our city is cheap when it comes right down to it" -- yet there are "not a lot of good blocks of 200,000 SF out there." Convinced?