Aramark's departure will deal a glancing blow to Market East

The building now known as Aramark Tower will sustain a financial hit from the loss of its namesake tenant, but it  — and the office market surrounding it  — will recover, the property's owner and some local brokers and analysts say.

The Girard Estate charitable foundation, which owns the 32-story tower, has hired a team at commercial real estate investment firm JLL to plan out the investments it intends to make toward bringing the 1980s building up to date, foundation spokesman Kevin Feeley said. 

The aim, he said, is to make sure Aramark's departure has no lasting impact on revenue from the building, which is one of the income streams used by the charity to support Girard College, the boarding school for financially disadvantaged students, in the city's Fairmount section.

"While there's likely to be some short-term impact, it is short term," Feeley said. "The reintroduction of the building to the market couldn't have come at a better time."

Aramark announced Monday that it planned to move in 2018 from 1101 Market St. to an office development being constructed on the frame of an industrial building more than a mile west.

The company had anchored its 634,000-square-foot headquarters tower since 1988, not long after it was constructed as the biggest office building east of Broad Street, a distinction it has maintained, in the Center City area known as Market East.

Developer Scott Toombs had conceived of the project as the first in an expected wave of office towers taking advantage of Market East's Regional Rail stop and other transit connections, said Bill Luff, a commercial real estate consultant in Philadelphia who helped with the building's original leasing strategy in the 1980s.

But the neighborhood's longtime lack of revitalization meant that 1101 Market was never able to attract high enough rents — including from Aramark — to be considered a financial success, said Luff, now founder of the consultancy CRE Visions. 

"It never captured the economic value commensurate to its geographic presence in the center of the city," Luff said Tuesday. "It was a building ahead of its time."

Luff and others said the times may now be catching up with 1101 Market.

The building stands directly across the street from the so-called East Market mixed-use complex being constructed by Washington-based National Real Estate Development, which will include an organic supermarket, offices, and two residential towers. 

Just to the east is the Gallery at Market East, which Philadelphia-based  Pennsylvania Real Estate Investment Trust and Macerich of Santa Monica, Calif., are working to transform into a name-brand shopping-outlet center. 

Those projects will boost 1101 Market's desirability, said Jay Joyce, managing director in Philadelphia for commercial brokerage Savills Studley — once they begin to materialize.

"Nothing is complete as of yet, so it can be a challenge in terms of re-leasing until we get a bit further along and people can see and feel what that side of town is going to be like," Joyce said.

The 365,000 square feet Aramark plans to vacate would bump Market East office vacancies up to 13.7 percent, their second-highest level since at least 2010, from an average of 10.8 percent during the three months ended June 30, according to a calculation by JLL based on an area bounded by Broad Street and the Delaware River, from Spring Garden Street to Locust Street.

That calculation provides only a rough sketch of the impact of Aramark's departure because it assumes everything else in the market remains constant until it leaves: no other tenant losses or gains, and no new office construction. 

But it does show the large impact that the loss of the food- and facilities-management company will have on the Market East area, said Lauren Gilchrist, JLL's director of Philadelphia research.

"It's reflective of a new, large block coming on the market," Gilchrist said Tuesday. "It's really a smart time to have a large block of space in this particular building becaue the market is finally coming to this section of east Center City."