October brings increased apartment specials for renters in Philadelphia's Center City

 By Brenda Nguyen CoStar Analytics

Center City, Philadelphia’s downtown, has experienced a notable increase in the share of apartments offering concessions since the spring leasing season. This downtown area encompasses neighborhoods including Rittenhouse Square, Midtown Village, Washington Square West, and Old City.

As of October 2024, more than 62% of Center City apartment buildings are offering concessions to renters, a significant increase from 17.5% that were offering concessions in April of this year. October's figure is the highest level recorded in three years.

Typically, apartment concessions are more prevalent during the winter months when fewer renters are inclined to move due to inclement weather and the holidays. That trend is expected to continue, with apartment owners offering elevated or even increased concessions in November and December, mirroring seasonal trends observed in previous years.

Unlike the situation in 2021, the current surge in rent concessions is primarily supply-driven rather than demand-driven. An influx of new developments hit the market at the same time in early summer. Year to date, more than 850 units across five developments have completed construction. Nearly all are offering concessions that range from one to two months of free rent to waived amenity and application fees.

Three significant recently completed multifamily projects have notably boosted the share of apartments offering concessions: 210S12, Josephine and the conversion of The Residences at The Bellevue. These developments collectively added 787 new apartment units to Center City between June and July 2024, all competing with each other for prospective residents.

Midwood Investment & Development’s 210S12 apartment building, which added 378 units, is offering two months of free rent on a 13- to 16-month lease and up to two and a half months for longer leases. This was the largest new high-rise multifamily development in Center City since Jessup House, a 399-unit high-rise apartment completed in mid-2023. A year after its completion, Jessup House still offers up to two and a half months of free rent on an 18-month lease.

A few blocks away, Lubert-Adler completed the first phase of its conversion of The Bellevue, which included 155 units. The Residences at the Bellevue is currently offering specials that include one month of free rent and a free sporting club membership plan, which begins at $195 per month.

Southern Land Co.’s Josephine, which has 254 units, is offering two months of free rent on a 14-month lease in addition to waived application and amenity fees.

With another 1,185 units currently underway across six other multifamily developments, concessions will likely persist into the spring leasing season of 2025 as developers contend with the expanding supply competition.

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Exeter buys Amazon-leased warehouse for $81.5 million

 By Nick Pasion – Reporter, Puget Sound Business Journal

Radnor-based EQT Exeter Real Estate Income Trust purchased a 34-acre property near Seattle that houses an Amazon.com Inc. warehouse for $81.5 million.

EQT Exeter acquired the 202,464-square-foot warehouse at 2871 S. 102nd St. in Tukwila for $402.54 per foot, nearly double the average rate across the Seattle area. King County's assessed value for the property is $80.9 million. The REIT purchased the property through EQRT 2871 102nd LP, a Delaware-registered entity.

The property is about 11 miles south of downtown Seattle.

“South Seattle is a highly sought-after, low-supply infill market with limited developable industrial land, an aging building stock, and strong appetite for warehouse space,” EQT Exeter's Ali Houshmand said in a statement.

The seller was a limited liability company linked to Dermody Properties, a Reno, Nevada-based industrial developer. The company did not return a request for comment.

EQT Exeter took out a $109.6 million loan with State Farm, King County records show.

EQT Exeter, the real estate arm of Swedish investment firm EQT, has been making major investments in real estate in other areas of the U.S. this year, too. That includes in Austin, Texas, and in California's Inland Empire. EQT Exeter paid roughly $450 million earlier this year for a 24-building portfolio across the Minneapolis/St. Paul metro area.

Full story: https://tinyurl.com/rk55hn59

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Prologis to ramp up warehouse purchases with global demand expected to climb

By Randyl Drummer CoStar News

Executives at the world's largest warehouse owner and developer expect to ramp up property acquisitions in coming months in a bet that industrial real estate demand will accelerate next year after a period of rising vacancies and subdued rent growth.

Prologis raised its projected spending on acquisitions to between $1.75 billion and $2.25 billion for the full year — up from its prior estimate of between $1 billion and $1.5 billion.

“Our teams are scouring the market for opportunities,” Chief Financial Officer Tim Arndt told investors during the company’s latest earnings call. "We see a very attractive market for acquisitions."

The move to buy more property comes as Prologis, based in San Francisco, posted a 6% increase in revenue in the third quarter to $2 billion from the prior-year period. The increase reflected year-over-year gains in rental revenue and leasing activity — even as the average occupancy rate across its 1.2 billion-square-foot global portfolio dipped to 95.9% from more than 97% during the same time in 2023.

"The bottoming process is [underway] as our customers navigate an uncertain environment," CEO Hamid Moghadam said in a statement. "Looking ahead, the supply picture is improving and the long-term demand drivers for our business remain strong."

The company's improving outcome comes amid signs that the surge in industrial vacancies in the United States over the past two years is nearing its peak and could start to fall next year, Adrian Ponsen, CoStar's national director for industrial market analytics, said in a recent commentary.

Ramping up for growth

Prologis has acquired over 14 million square feet of properties this year, Arndt said. The company recently paid $71 million to buy a collection of fully leased office and research properties in the San Francisco suburb of Fremont, CoStar News reported.

The company plans to snap up more properties before the end of 2024 to prepare for an expected rise in tenant demand next year amid a dwindling pipeline of new warehouses under construction.

The U.S. industrial vacancy rate ticked up slightly to 6.6% in the third quarter from 6.5% in the second quarter, the smallest quarterly increase recorded since late 2022, CoStar's Ponsen said. The slowing vacancy increase comes as a record wave of speculative warehouse development is finally winding down this year, he added.

Arndt said he doesn't expect demand to significantly pick up until around mid-2025.

“While occupancy and rents have softened against a backdrop of positive yet subdued demand, we continued to deliver impressive net effective rent [gains], which bridges us through this soft patch to the next cycle of rent growth," he said. "Customers are taking time to make decisions, but warehouse utilization is up this year, and that will be a catalyst for them" to eventually take more space.

The real estate investment trust also now expects to sell more properties than previously expected.

Prologis anticipates raising $1.25 billion to $1.75 billion from selling properties, up from its previous estimate of $1 billion to $1.4 billion. The company recently sold a pair of warehouses in the Chicago area for a combined $106.5 million in two of the area’s largest single-property sales this year.

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US industrial market vacancy rate hits 10-year high in Q3

 By Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals

The nation's industrial market continued to slow in the third quarter, building on a two-year cooling-off period after its pandemic heyday, but the market could soon hit bottom.

Preliminary data found the U.S. industrial vacancy rate hit 7.4% in Q3, a 350-basis-point increase from two years ago. It's also the highest vacancy rate within the national industrial market in a decade.

The national industrial market has undergone the steepest uptick in vacancy in the shortest period of time ever. That's largely thanks to how hot the market had become — and how very quickly — during the Covid-19 pandemic, followed by a significant cooling-off period as consumer and industrial tenants' needs changed.

Sublease availability also grew substantially within industrial in Q3, reaching a record 198.7 million square feet. That's up 45% from the same time a year ago and continues to rise, albeit at a slower pace than what's been recorded in recent quarters. Sublease space grew 8.8% in Q3 compared to an average quarterly growth rate of 20.1% last year.

"The base of the change that we’ve experienced ... has been a big shock to the system

and has had a lot of implications in terms of rents and tenant-landlord dynamics. To characterize the current situation, we’re finding the bottom of this mini-cycle. I think we are approaching that plateauing of vacancy and sublease availability, but time will tell."

It's likely more industrial groups will move forward on real estate decisions following the November election, Russo said, once they've begun to figure out what the incoming White House administration's policy goals may be.

In response to the slowing market, new construction has also plummeted, with starts in Q3 hitting their lowest level since 2016.

Full story: https://tinyurl.com/bd3pejvh

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New York real estate firm moves to seize historic Wanamaker building via foreclosure

By Paul Schwedelson – Reporter, Philadelphia Business Journal

After acquiring a majority of the debt on the historic Wanamaker building, TF Cornerstone is pushing to seize the Center City office property from owner Rubenstein Partners.

With the New York real estate firm now holding the loan, the dynamic of the Wanamaker's ongoing foreclosure case has shifted. Instead of Rubenstein's debt being held by a commercial mortgage-backed securities (CMBS) trust focused on providing a return for its investors, the loan is owned by a developer that could see more opportunity in taking possession of the building’s nine floors of office space.

TF Cornerstone already owns the Wanamaker's 435,000-square-foot retail space that houses Macy’s, paying $40 million for the three-floor department store in 2019. The remaining 954,363 square feet in the 114-year-old building — office space on floors 4 to 12 and the 660-space underground parking garage — is owned by Rubenstein and backs the Philadelphia firm's $124 million mortgage on the property.

The Wanamaker, located across from City Hall at 1300 Market St., embodies the challenges facing Philadelphia’s office market in the wake of a shift to more remote and hybrid work policies driven by the Covid-19 pandemic. The building was placed in receivership in September 2023, and its office occupancy has dropped from 96% in 2020 to just 23%, according to CMBS and receiver's reports.

TF Cornerstone replaced Wilmington Trust, which represented investors in the CMBS trust that previously held the loan, as the plaintiff in the foreclosure case against Rubenstein. The new debtholder is now seeking “to foreclose defendants’ interests in Philadelphia’s storied Wanamaker building,” according to a discovery motion Rubenstein filed Oct. 7 in the Philadelphia Court of Common Pleas.

In a response to the motion, TF Cornerstone called a foreclosure action the “inevitable consequences” of Rubenstein's failure to repay the loan when it matured in June 2023.

Full story: https://tinyurl.com/48tpehs4

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