By Katie Burke CoStar News
Office tenants, for the first time in years, are committing to more office space than they're planning to offload. One of Philadelphia's largest landlords is making sure it's best positioned to capitalize on the upswing by trimming its portfolio to focus on its best-performing properties.
Brandywine Realty Trust is preparing to sell off up to $300 million of its portfolio throughout the remainder of the year, following a strategy other major landlords across the United States are deploying in an effort to strengthen their position alongside the recovering market.
For the Philadelphia-based firm, that plan is based on what Chief Executive Officer Jerry Sweeney says is improving lease economics and the ongoing spike in demand for top-tier office properties.
Yet as tenants flip back into leasing mode, their attention has primarily been concentrated on the highest end of the office-quality spectrum.
The landlord, for example, has pulled out of the Washington, D.C.-area office market due to slow leasing activity; but in Austin, Texas, it landed a large anchor deal last year with AI chipmaker Nvidia for a just-built office building as part of Brandywine's Uptown ATX mixed-use project.
"Our 2026 business plan is very straightforward and highlighted by solid core portfolio performance and strong leasing activity," the CEO told analysts on the REIT's earnings call Wednesday. "We experienced increased tour levels in all of our core markets and continued to experience good conversion rate from these tours. We're projecting positive net absorption for the first time in several years as another evidence of an improving market."
The national vacancy rate of about 14% has largely hit its peak, according to CoStar research. While U.S. office leasing has yet to fully recover to pre-pandemic levels, the 12 million square feet of deals signed in the third quarter is the most since 2019.
The uptick in leasing over the past year has also closed the gulf between occupied and leased rates, a residual sticking point for landlords that have struggled in recent years to backfill large blocks of space that tenants ditched in the pandemic.
Dealmaking mode
The REIT, one of the largest publicly traded office owners and developers in the United States, finalized nearly 1.6 million square feet of office deals last year across both its wholly owned and joint-venture portfolios.
It operates a portfolio largely focused on the greater Philadelphia and Austin, Texas, areas. Its footprint of about 120 properties across roughly 20 million square feet was just shy of 90.5% leased by year-end 2025, a figure that outpaced its 88.3% occupancy rate given the lag time between when a tenant commits to space and when they officially move into it.
Brandywine executives are targeting a slight boost to both figures by the end of this year, with its leased rate goal set to about 91%.
While it didn't provide specifics as to what or where, the company's disposition strategy this year is shoring up its financial position, with "sales proceeds used to reduce leverage, period," Sweeney said. That has become especially important as the landlord has seen strengthened leasing momentum in its core Philadelphia and Austin markets.
"We’ve really been able to drive effective rents there, and that’s really a function of demand levels returning to pre-COVID levels," the CEO said. Last year "we saw the highest level of new deal volume in the past five years, so certainly things seem to be accelerating, the inventory is shrinking, and there have been a number of properties that are either in some level of financial strain or in the process of being evaluated for residential conversion."
In other words, supply is dwindling at a point when tenant interest is beginning to gain steam, and Brandywine wants to ensure its prepared to accommodate it. Executives pointed to improving capital markets and strengthening valuations — both trendlines expected to extend throughout 2026.
"We have half a billion dollars of assets on the balance sheet that aren’t generating a lot of return right now," Sweeney said of the REIT's focus on the year ahead. "We think as that leases up, we’ll be in great shape. All the key ingredients are here to get back to investment-grade metrics and stabilize these development projects, all while we’re recycling assets to generate additional liquidity but also maintaining good operating portfolio performance."
