Tuesday, October 27, 2020
Monday, October 26, 2020
Philadelphia Refinery to be Repositioned as Massive Industrial Park
Hilco Redevelopment Partners said it plans to demolish and redevelop the East Coast’s oldest and largest oil refinery into what could be one of the largest additions of industrial real estate ever in Philadelphia, in a long-term project that could add space amounting to almost 3% of the city's existing inventory.
The company, the real estate development unit of financial services company Hilco Global, announced a multibillion-dollar plan to decommission, demolish and redevelop the 1,300-acre site that operated for roughly 150 years as an oil refinery until Philadelphia Energy Solutions closed it last year.
The developer said it plans to build a distribution and logistics hub that would bring between 13 million and 15 million square feet of logistics space to the city in phases over several years. In all, the project could add as much as 2.9% more industrial space to the market, which totals about 557 million square feet of industrial real estate now.
For context, developers completed about 15 million square feet of industrial projects across Philadelphia during all of 2016, 2017, and 2018.
The logistics park is expected to target major national and international companies looking to expand their distribution networks on the East Coast and would employ thousands of workers on-site when complete.
Hilco is undergoing an environmental clean-up of the site, which closed last year after a massive explosion at the facility led Philadelphia Energy Solutions, the operator of the refinery, to declare bankruptcy.
The explosion damaged a significant portion of the campus and led Philadelphia Energy Solutions to lay off more than 1,000 workers before it shut down.
Hilco bought the refinery in June for $225.5 million at bankruptcy court, according to a previous statement from the company. According to a city report last year, the site has the "most permissible industrial zoning category" and would allow for a wide range of industrial uses.
To accommodate a proposed development schedule, HRP said its plan is expected to be conducted in phases that allow portions of the site to be decommissioned and remediated as others are being redeveloped concurrently.
“Our plan is to transform the site into a commercial hub to be shared by dozens of world-class companies that will benefit from Philadelphia's diverse workforce and strategic location with an environmentally responsible infrastructure that will be great for all Philadelphians,” Hilco’s CEO, Roberto Perez, said in the earlier statement.
The site, known in Philadelphia as the PES refinery, is a storied one that largely defined Philadelphia’s port region for the nearly 150 years it was in operation. The site was first developed into a refinery by Atlantic Refining Co. in 1870, and would host the refineries of some of the nation’s oldest oil and gas companies, including Gulf Oil Corp. and Sunoco.
In terms of its total acreage, the refinery site is the largest such refinery on the Eastern Seaboard. At its peak, it processed roughly 355,000 barrels of crude oil per day.
Philadelphia has strong fundamentals as a logistics destination, though, and this development could provide a strong surge of momentum in making the city an East Coast distribution hub.
The city’s industrial sector is the only commercial real estate sector that has not experienced a leasing slowdown throughout the coronavirus pandemic. Philadelphia’s industrial vacancy rate is just 5.3%, which is a 25-year low for the city.
And perhaps most importantly, Philadelphia sits squarely between New York City and Washington, D.C., “right in the middle of the largest region of purchasing power in the western hemisphere.”
In recent months, top e-commerce retailers including Target, Amazon, Houston-based Utopia Fulfillment and the produce delivery service Misfits Markets have expanded their distribution footprints in Philadelphia.
Thursday, October 22, 2020
Tuesday, October 20, 2020
Sublease Availability Hits Record Level in US
By Michael Roessle CoStar Analytics
While the U.S. office market had been resilient at the outset of the pandemic, cracks have emerged.
The amount of available sublet space on the market rose considerably midyear and further accelerated in the third quarter. Prior to the second and third quarters of this year, the supply of U.S. sublet space has been generally stable, varying between roughly 100 million square feet and 110 million square feet over the past decade. The 156 million square feet of available sublet space now on the market is a record high and represents an increase of 40 million square feet from the end of 2019.
The questions surrounding the future of the economic recovery and the course of the pandemic create uncertainty for many tenants regarding their own finances and future space needs. As office leases tend to be longer term, firms looking to cut real estate costs have relatively few options. One is to sublet either part, or all, of their current office space to recoup at least some of the cost — and office occupiers are increasingly attempting to do that.
Whether or not there will be many tenants interested in subleasing this space remains doubtful, as demand in the office sector during the third quarter plummeted to its lowest level since the dot-com bust following a weak midyear result. Demand forecasts for the fourth quarter don’t show a rebound, so this excess space may linger on the market for some time, even at a discounted rent.
Areas of the country that some felt were best able to weather a downturn with a temporary transition to working from home are the same areas seeing sharp increases in sublet space.
Tech hubs such as San Francisco and Austin, Texas, have seen the amount of sublet space on the market double since the end of last year. Retail and hospitality focused tech firms have felt the brunt of the shutdowns in those industries. Uber, Airbnb and Yelp have all laid off a significant number of employees in the San Francisco Bay Area. More than 68,000 square feet formerly occupied by KeepTruckin and Yelp has recently been offered for sublease at 55 Hawthorne St. in San Francisco.
Seattle and San Jose, California, have also seen 50% increases in sublet availability. Software firm SAP Concur put its 100,000-square-foot headquarters at Key Center on the market for sublease in Bellevue, an area that was arguably the hottest in the entire Seattle market.
Though Chicago is not a purely tech-centric market, Groupon plans to lay off more than 40% of its employees and is trying to sublease 150,000 square feet of its office space at 600 W. Chicago Ave. Additionally, restaurant software supplier Toast is looking to offload roughly half of its 50,000-square-foot space at 515 N. State St.
There is concern that these markets would suffer more than others should more office occupiers opt to permanently reduce footprints. All of the aforementioned areas of the country have a robust supply pipeline, totaling a combined 37 million square feet. About 42%, or 15 million square feet, remains available for lease in those projects. At the same time, these markets have seen the amount of available sublease rise by nearly 14 million square feet combined since the end of 2019, putting more stress on the availability rate.
Should more companies face financial distress or decide to shift part, or all, of their employees to a permanent remote-work situation, the recent flood of sublease space may be a harbinger for a tsunami that is gathering strength.
Monday, October 19, 2020
Reading Is the Industrial Market to Watch in Central Pennsylvania Amid Pandemic
The industrial market in Reading, Pennsylvania, finds itself in a precarious position entering the fourth quarter of 2020, and things could improve or deteriorate rapidly.
The market's vacancies are close to 13.5%, largely due to a surge of construction over the past five years. Developers have brought more than 7 million square feet online during that time, but demand hasn’t kept pace until very recently.
Incredibly, 2020 has been one of the strongest years of industrial demand in Reading's history. Since January, more than 2.1 million square feet has been absorbed, which is more demand than the market saw in the previous five years combined. A substantial chunk of this space was filled by Amazon, which filled more than 1 million square feet at the 78 Trade Center in the first quarter.
Amazon is a logistics demand generator by itself, but the real draw in Reading is Interstate 78, which is Pennsylvania's main trade artery. Recent development has been centered around access to it, and Reading lies midway between Harrisburg and Lehigh Valley, two of the commonwealth's most prominent distribution nodes.
But those markets offer something Reading does not: direct access to a north/south interstate. This appears to have had some limiting factor on local industrial demand. Pre-2020, Reading’s absorption levels were routinely dwarfed by its prominent neighbors, and many of the largest projects to deliver in the past five years still sit vacant.
This problem might prove negligible in the near future as we undergo a massive shift in consumer spending habits. The coronavirus has accelerated the growth of e-commerce tremendously, with census data showing that online shopping has nearly doubled in the past four quarters. CoStar's latest national data shows that industrial leasing activity has returned with a roar, with national absorption closing at some of the highest levels in years.
If consumers continue shopping online boosting demand for logistics hubs across the country, Reading’s pain could be very short-lived. The strong absorption seen this year could indicate that this is in the future.
But there’s several million square feet of speculative space underway in Lehigh Valley, which offers a superior location. There are also millions of square feet of space underway in the Philadelphia and northern New Jersey markets, which could siphon demand away from Berks County as well.
This market sits on a knife’s edge and for those in Central Pennsylvania interested in industrial properties, its progress or lack thereof, will be worth monitoring in the coming months.
