Savills Studley Report Philadelphia office sector …

1 Savills Studley Report Philadelphia office sectorQ4 2017 Savills Studley Research PhiladelphiaSUMMARYM arket HighlightsLEASING KEEPS ROLLING Quarterly deal volume across the Philadelphia region totaled msf, an increase from the msf leased in the third quarter. Tenants have leased msf in the last four quarters, just above the long-term average of msf leased per year. AVAILABILITY DOWN SLIGHTLYC enter City s availability rate fell for the first time since the fourth quarter of 2016, decreasing by 40 basis points to The Class A rate decreased by 50 basis points to Overall and Class A availability rates have both increased by 100 basis points compared to year-end 2016.

2 RENT DECLINESO verall asking rent for the region increased by to $ Asking rent in Center City posted a quarter-on-quarter decrease to $ Philadelphia s office leasing ended strong for the year, and should continue to move forward in the same manner throughout 2018. Morgan Langley, Research Analyst 02 Savills Studley Report | PhiladelphiaOffice LeasesThe Philadelphia region office market finished the year on a strong note. A total of msf were leased regionally in the fourth quarter. The energetic finish to the year resulted in an increase in leasing from the previous quarter. Fourth quarter leasing volumes outperformed the 5-year average by an impressive the highest total since the third quarter of 2015.

3 After an unremarkable start to the year, 2017 concluded with a total of msf leased across the region. On a historical basis leasing volume was above the annual average from the past five years. This leasing data reiterates the strength of the Philadelphia region through this extended economic cycle. By all indications the Philadelphia office leasing market will continue to push forward with healthy trends in 2018. Following an uncharacteristically slow third quarter, Philadelphia s CBD rebounded nicely in the fourth. The msf leased in the CBD was a 195% spike from the previous quarter and the highest total since the third quarter of 2013. In the largest new lease signed in the CBD, Jefferson Health, took 237,000 SF at 1101 Market St.

4 In East Market. This transaction, led by Savills Studley , will revamp the Philadelphia skyline by converting the iconic Aramark Tower into Jefferson Tower. On the other side of town, Spark Therapeutics continued its expansion in University City by leasing 107,669 SF in One Drexel Plaza. The building, which is the first project within Brandywine Realty Trust s $ Schuylkill Yards project, is currently undergoing extensive facade renovations. Brandywine Realty Trust recently kicked off the construction of a acre park at the entrance. Spark Therapeutics received FDA approval for the treatment of a rare eye disorder and seized upon their success with plans to occupy the premium space.

5 Down the street from One Drexel Plaza, 2400 Market St. announced the leasing of 75,000 SF by the Fitler Club. Opening in early 2019, The Fitler Club is a high-end private lifestyle club specifically geared towards millennials in the tech industry and creative fields. After a strong third quarter, the suburban markets slowed in the fourth quarter. Quarterly deal volume totaled 791,475 SF, a decrease from the previous mark. Suburban leasing totaled msf during 2017, 8% below the 5-year average of msf. Although slightly behind the Source: Bureau of Labor office (% Annual Change) (% Annual Change) office -Using Employment Trends$ $ $ $ $ $ $10$15$20$25$30$35 4Q17 4Q16 4Q15 4Q14 4Q13 4Q12 4Q11($/sf)Rental Rate TrendsTotalClass AClass BAsking Rent 4Q17 4Q16 4Q15 4Q14 4Q13 4Q12 4Q11(%)Availability Rate TrendsTotalClass AClass BAvailability Rate 03 Q4 2017 TenantSq FeetAddressMarket AreaComcast300,0001717 Arch StWest MarketThomas Jefferson University237,0001101 Market StEast MarketSiemens Medical Solutions184,87251 Valley Stream PkyRoute 202/422/King of PrussiaPhila.

6 County Court's Probation Office120,000714 Market StEast MarketSpark Therapeutics107,6693001-3025 Market StWest MarketConde Nast Publications76,4481313 N Market StWilmingtonFitler Club75,0002400 Market StWest MarketQlik Technologies62,000211 S Gulph RdRoute 202/422/King of PrussiaSallie Mae57,75684-90 Christiana RdNew Castle CountyAclaris Therapuetics36,946640 Lee RdRoute 202/422/King of PrussiaSum of Leases1,257,691 Sum of 4th Quarter Leasing MSFaverage, this trend falls into line with recent consolidations and high leasing volume in the CBD. The largest suburban lease of the quarter was a renewal by Siemens Medical Solutions for 184,872 SF at 51 Valley Stream Parkway in Malvern.

7 In another significant lease, Savills Studley represented Qlik Technologies for their 62,000 SF headquarter relocation to 211 S Gulph Road in King of Prussia. The relocation increases Qlik s visibility and office culture as the anchor tenant of a newly renovated building. Suburban submarkets should continue to move steadily in 2018 and could potentially be in line for an uptick in leasing with several buildings changing hands and being renovated to attract higher class tenants. Sales ActivityCapital markets remained healthy through the fourth quarter. In the CBD, sales were once again active after a slow start in the first two quarters of the year. CBRE Global investors cashed in on a downtown asset selling the Duane Morris Plaza for $ or $146 million for the 617,000-SF office building.

8 The buyer, Oaktree Capital Management, paid roughly the same price per square foot as the recent sale of 1700 Market and Two Liberty. Elsewhere in West Market, Paul Profeta sold 2300 Chestnut for $ or $ Profeta owned the building for 35 years before selling it to Stolz Real Estate in October. On the east side of the city, PREIT sold the remainder of their interest in 801 Market St to Cohen Equities for $ or $96M. After a tough year for PREIT stock, the company posted profit of $ from the sale. In other CBD capital markets activity, Keystone Property Group refinanced the Curtis for $ and will use $30M of that to continue the conversion of the east side of the building into apartments as well as supplementing future tenants TI packages.

9 office portfolios continued to change hands in the suburbs. Perennial Investments and Advisors acquired 11 office properties in the Blue Bell/Plymouth Meeting submarket from Och-Ziff Capital Management, paying $ or $47M on 612,738 SF. In Newtown Square Brandywine Realty Trust continued to offload suburban assets, selling five office buildings to the Henderson Group for $168/SF or $42M. Finally, the American College of Financial Services made a long-term commitment by purchasing 630 Allendale Rd from Brandywine Realty Trust for $ or $ for its headquarters in King of Prussia. Looking ForwardLooking ahead into 2018, the market should continue to move forward at a healthy pace.

10 Indications are that leasing activity will be similar to 2017 with multiple large tenants renewing or relocating in downtown Philadelphia . Large leases to watch for in the CBD are the EPA, Penn Health, Macquarie, Aberdeen and Wells Fargo just to name a few. In the suburbs, leasing should remain the same with positive activity in a large part due to buildings changing hands and undergoing renovations to attract higher-end tenants. The commercial real estate market will, however, be keeping a close eye on TEVA Pharmaceuticals North American headquarters in North Wales. The Pharma giant recently announced 14,000 future lay-offs with a significant number likely to come from the North Wales campus.