Parkway Corp., the city's largest owner of parking garages and lots, plans to build an office, residential or hotel tower with up to 275,000 square feet of space atop an existing garage at 800 Walnut St.
Parkway president Robert Zuritsky said yesterday that low office-space vacancy rates in Center City had prompted him to test the market for the site, above the 700-car parking garage.
"It's starting to get good in town again with a lot of things - including apartments and condos," he said. "And office space now, with the rents that are being quoted on the A buildings in town, you can start to justify a new office building."
Real estate brokers say the vacancy rate for Class A office space in the East Market Street district from Seventh to Broad Street was about 5.2 percent, compared with 15 percent two years ago.
The average price per square foot downtown is in the high $20s, but trophy buildings, such as One Liberty Place, the Comcast Center, and the Mellon Bank Center, can fetch up to $35 per square foot.
"The overall market downtown has tightened up," but the East Market Street area "has significantly tightened up," said Jim Egan, senior vice president at Grubb & Ellis Co., who is representing Parkway on the site. "Anytime it gets below 10 percent, that is considered a tight market."
Parkway is in a partnership with Urban Residential to develop a 30-story W Hotel and residences at the southwest corner of 12th and Arch Streets, where ground is expected to be broken this fall. It also is building 1706 Rittenhouse, a 32-story condominium, in a joint venture with developer Tom Scannapieco.
Zuritsky said the Walnut Street site, located on the PATCO line and in proximity to restaurants and retail shops, was ideal for any one of the possible uses.
Parkway entered into the Eighth and Walnut project in 1984. The original master plan included a single parking garage that could support two towers.
Zuritsky said his former partner, Historic Landmarks for Living, pulled out of its plans to develop the twin towers.
Parkway spent years developing a 70,000-square-foot office building on one end of the garage. In 2002, Wills Eye Medical Center acquired the air rights above that building and built a mid-rise tower on its roof.
Now Parkway wants to build its long-awaited second tower. "An office tower would be my first choice," Zuritsky said of his vision for Eighth and Walnut, "but we are putting this out so it is available to developers to partner with us with whatever else is out there."
Zuritsky said there had been discussions in the past with developers to build a hotel there, "but they only wanted to build 100 to 120 units, and that was not enough."
He said the site could accommodate a structure as high as 25 additional stories on top of the six-story garage.
"That's what it was designed for," he said.
Experts say several factors have contributed to Center City's low office-vacancy rate. Among them was that Comcast Corp. itself absorbed most of the space in the Comcast Center - more than 1 million square feet - and the center did not get Keystone Opportunity Improvement Zone status, in which businesses are exempted from certain city and state taxes for 15 years.
"Other office buildings didn't become disadvantaged by the availability of that block of space being tax-free," said Dave Campoli, vice president of the Philadelphia-based Northeast Central Region for HRPT Properties Trust, of Newton, Mass. HRPT owns 5 million square feet of Class A commercial office space in a number of downtown buildings, including Center Square, the Mellon Bank Center, the PNC Bank Center and GlaxoSmithKline. "It kept us all in a level playing field."
Andrew Liverman, a research associate at Cushman & Wakefield Inc. who specializes in commercial real estate, said there also had been a lot of organic growth among existing city office tenants, particularly with health organizations, such as the University of Pennsylvania, which is seeking to move administrative offices off-campus.
A 2006 report by Grubb & Ellis cited 20 percent growth among existing tenants in Center City.
"Philly is recognized as having one of the strongest life-science markets in the country, and the ripple effects are also seen in the commercial business district in the downtown market," Liverman said. "Definitely, we are seeing across-the-board growth in industries, and new tenants, like financial groups, are opening offices here that weren't here before."
Added Campoli: "There has really been no flight to the suburbs. Employers in the past went where they opted to go, and now employers are following the employees, who want to be in the city."