Tuesday, April 1, 2025
Philadelphia pulls ahead of nation’s office recovery in 2025
By Brenda Nguyen CoStar Analytics
Philadelphia emerged as the most stable office market among the 15 largest U.S. office markets heading into the spring season. Following a year of occupancy gains, the Philadelphia region now boasts the lowest office availability rate at 14.1%, slightly ahead of Minneapolis at 14.2%.
In a notable departure from national trends, Philadelphia is one of only three major U.S. office markets experiencing positive absorption—the measure of space occupied versus vacated—over the trailing 12 months, joining Dallas-Fort Worth and New York in registering occupancy gains, while the remaining top U.S. office markets continued to see occupancy losses.
The Philadelphia regional office market recorded 1.2 million square feet of net absorption during this period, representing a 0.4% increase relative to its inventory. Recent performance places the market ahead of the national recovery trajectory at a time when office downsizing remains prevalent across the country.
Developers pump brakes on new Philadelphia-area industrial buildings
By Brenda Nguyen CoStar Analytics
Philadelphia's record-setting industrial development boom is winding down after an unprecedented five-year stretch that saw 55 million square feet of industrial space added to the region's inventory. As of March, 12.4 million square feet remain under construction across the Philadelphia region, a 52% decline from the early 2023 peak.
The development slowdown, which mirrors the national trend, primarily stems from the growing backlog of vacant newly delivered buildings. Approximately half of the 32 million square feet of industrial space completed in the Philadelphia region over the past two years remains unleased. Compounding this issue, 80% of the current 12.4 million square foot development pipeline is characterized as speculative, with no secured tenants.
The growing inventory of vacant newly built facilities has increased Philadelphia's industrial availability rate by 420 basis points since mid-2022. The market now faces a double-digit availability rate of 10.4%, which exceeds the national average by 80 basis points.
Several Philadelphia industrial brokers have indicated that their landlord clients had sat on their vacant properties for longer than anticipated when many projects broke ground in 2022 and 2023, a period of robust demand.
However, as unanticipated carrying costs pressure landlords, they have become more open to subdividing their warehouses to cater to a wider range of tenants.
CoStar data for Philadelphia's industrial market shows that the median time it takes to secure a tenant has inched upward from 4.7 months to 7.3 months during this two-year period.
In response to these market conditions, the number of industrial construction projects has plummeted. Only 1.7 million square feet of new industrial space broke ground in the second half of 2024, the lowest two-quarter level since 2018.
The ongoing development pipeline of 12.4 million square feet represents a 1.9% increase in existing inventory—still outpacing the national rate of 1.5%. However, the current downward construction trajectory suggests less supply will enter the Philadelphia market starting in 2026. The pullback should provide time for demand to absorb the 30 million square feet of additional available space added since mid-2022.
Thursday, March 27, 2025
Duane Morris downsizing nearly 20% of Center City office space
By Paul Schwedelson and Jeff Blumenthal – Philadelphia Business Journal
Duane Morris has signed a long-term lease renewal at Duane Morris Plaza to downsize by 45,000 square feet, continuing the trend of law firms reducing large chunks of their office footprint.
The renewal drops Philadelphia-based Duane Morris’ space at the Center City office tower from 241,022 square feet to 195,757 square feet, a 19% reduction. The law firm will go from occupying seven and a half floors down to six.
Duane Morris already gave back 16,000 square feet, or 6% of its space, when it exercised a contractual option in 2022, meaning the firm is now taking a quarter less space from its original previous lease.
In addition to the renewal, Los Angeles-based building owner Oaktree Capital Management is refurbishing the lobby and implementing system upgrades.
The lease includes 183,000 square feet of office space and the 12,000-square-foot Morris’ Café. The building, at 30 S. 17th St. in the heart of Philadelphia’s office district, will retain Duane Morris Plaza as its name.
The law firm’s existing space is also planned to undergo a full renovation, which is scheduled to start in the fall and take 18 months to complete. Duane Morris’ previous lease was set to expire in March 2026.
Duane Morris is one of the largest law firms in the Philadelphia area, according to Business Journal research, with more than 240 local attorneys.
The lease renewal comes after Oaktree Capital Management’s $105.3 million commercial mortgage-backed securities (CMBS) loan for the building was transferred to special servicing in late January, according to servicer notes.
A month later, servicer notes reported the “lender is negotiating a loan extension that will enable the borrower to inject new equity and extend the Duane Morris lease.” The CMBS loan isn’t set to mature until November 2027. Wells Fargo Bank is the loan’s master servicer while Rialto Capital is the loan’s special servicer.
Reserves were used in February and March for the monthly interest payment, according to a CMBS report.
By retaining Duane Morris as its largest tenant, the 20-story, 617,476-square-foot building has a clearer future. The law firm had considered moving elsewhere in Philadelphia’s central business district, a move that would’ve hurt Oaktree Capital Management’s financial stability with the building.
Full story: http://tiny.cc/8upe001
NorthPoint plans 247-acre data center campus at former U.S. Steel site in Bucks County
By Paul Schwedelson – Reporter, Philadelphia Business Journal
In a change of strategy, NorthPoint Development plans to incorporate a 2 million-square-foot data center at its massive Keystone Trade Center in Bucks County.
The $1.5 billion industrial project at a former U.S. Steel site in Fairless Hills is entering its third phase.
Billed as a “digital infrastructure campus” by NorthPoint, the planned data center will span 247 acres and be spread across 10 buildings ranging in size from 112,000 square feet to 217,000 square feet. Each building is planned to be one or two stories tall.
The Kansas City-based developer received approvals from Falls Township’s Board of Supervisors for construction of the data center buildings.
NorthPoint’s previous plans for the 247-acre parcel called for four distribution warehouses made up of a 1 million-square-foot building at 1 Ben Fairless Drive and more than 3 million square feet of warehousing space at 700 S. Port Road.
“This is in the spirit of diversification of this site,” NorthPoint attorney Mike Meginniss said in a Falls Township news release announcing the approvals.
NorthPoint did not respond to a request for comment.
The developer has already completed and leased the first two phases of the Keystone Trade Center, which totals 5.5 million square feet of industrial space, according to marketing materials.
In January, the Business Journal reported that Monroe, New Jersey-based US Elogistics signed a lease for 518,000 square feet at a recently completed 1.04 million-square-foot building on the industrial campus.
The 1,800-acre Keystone Trade Center development could be built out to 20-plus industrial warehouses, distribution centers and data centers totaling between 10 million square feet and 15 million square feet.
NorthPoint's shift to a data center represents the changing dynamic of the market. While demand for industrial warehouse space spiked earlier this decade, it’s cooled off significantly in the past two years.
It’s another example of how NorthPoint has exhibited flexibility while building out the mega project. Two years ago, NorthPoint sold a 69-acre pad-ready site with entitlements, mass excavation and some utility work already completed to German grocer Lidl for $144.6 million. NorthPoint originally planned to build a 1.2 million-square-foot warehouse on the site.
Full story: http://tiny.cc/ktpe001
Philadelphia developer buys Center City office building for potential multifamily project
By Paul Schwedelson – Reporter, Philadelphia Business Journal
An entity affiliated with Eclipse Development, a new Philadelphia development company, has bought a Center City office building from the American Red Cross in a prime location for a potential multifamily project.
The entity bought the five-story, 52,676-square-foot office building for $7.2 million, according to property records.
Eclipse’s plans for the property are still being formed. A potential option includes leasing office space on a short-term basis for up to two years before either converting the existing building to multifamily or tearing it down to make way for a ground-up multifamily building, Eclipse co-partner Ryan Kalili said.
The property is on the northeast corner of 23rd and Chestnut streets, a block east of 2400 Market St., an office building that was redeveloped and expanded in 2018 and a block south of law firm Morgan Lewis & Bockius’ new headquarters at 2222 Market St.
The purchase price came out to $137 per square foot. It was most recently assessed by the City of Philadelphia at over $12 million, or $229 per square foot.
“It’s undeniable that the location is phenomenal,” Kalili said. “You’re on a great corner in Center City. We had decided we wanted to do a project in Center City. This particular parcel made sense for us because there was value in the existing structure as well.”
Eclipse is led by Kalili, 26, along with co-partner Michael Dinan, 26, and Eric Haab, 27, who is development associate. They all previously worked for Archive Development, which specialized in development in Fishtown and throughout Philadelphia, but didn’t have any Center City projects.
The Business Journal first reported last week that Eclipse also recently purchased a development site at 21st and Ludlow streets from Parkway Corp.
The former Red Cross office building is fully vacant, which appealed to Eclipse, since that would make a residential conversion or demolition of the building less challenging.
The property sits in a CMX-4 zone, allowing for a mix of commercial and residential uses. Dinan said Eclipse is beginning its leasing effort for prospective office tenants, which could serve as a temporary solution while evaluating a long-term path forward.
Full story: http://tiny.cc/2tpe001
