King of Prussia’s diverse commercial real estate market persists through the pandemic.
According to CoStar, the vacancy rate for Class A office space increased by less than a point to 15.5% from the previous quarter and only a half point from the same time last year before disruptions from COVID-19. Even with a slight rise in vacancy, the average lease rate increased by $1.31 to $39.19 PSF due, primarily to premium inventory associated with life science lab space.
Class B office vacancy increased by 2.2 points to 12.6% during the past year, still considerably lower than the rate for most of the past decade, including a reported 23.7% vacancy rate for Q1 2011. Vacancy rates for Class C office space experienced the greatest fluctuation over the 12-month period, jumping from 6.7% in Q4 2019 to 30.8% at the end of the last quarter. However, the inventory in Class C office spaces is still small compared to the other classes with only 384,390 SF over 15 properties with a mix of office and medical space. The average leasing rate decreased over the same period by a dollar to $26.32 PSF.
The vacancy rate for industrial property stands at a minuscule 0.2% with an average lease rate increase of $1.19 to $10.68 NNN from the same time last year. Flex properties remained steady at 18.9% vacancy rate while the average lease rate climbed $10 to $38.08 NNN from Q4 2019 with an influx of quality lab space.
Commercial retail vacancy rate dropped by more than a point from the end of 2019 to 2.4% with the average lease rate increasing by $25.73 NNN at the end of 2019 to $26.81 NNN at the end of Q4 2020. While this doesn’t reflect the true economic conditions facing retailers or the number of shuttered stores, it does show demand for retail space remains steady in King of Prussia. This bodes well for the recovery after the worst of the pandemic subsides.
Reports from property owners in KOP suggest that we will not see a full-scale return to the office environment until after the overwhelming majority of US citizens are vaccinated. This likely means that the office labor force will not be at full capacity until sometime during the 3rd quarter of 2021.
