Office tenants have the real estate advantage, analyst says

by Joseph N. DiStefano, Philadelphia Inquirer

Commercial-real-estate pros have been reduced to playing "musical chairs" as tenants enjoy their pick of nicer, cheaper offices instead of having to build or lease new space, analyst John W. Guinee writes in a report to clients of brokerage Stifel Nicolaus & Co.
Almost the only places in America where office demand and rents are rising are three hopping "media, entertainment and technology" centers: Silicon Valley; New York City's Midtown South (including "Silicon Alley"), and San Francisco's South of Market (SoMa).
Office space in midtown Manhattan is renting in the $45-$65-per-square-foot range, double or more what space fetches in Center City. (That explains why the big University City institutions, Penn, Drexel, CHOP, are expanding east across the Schuylkill.) In lower Manhattan's Wall Street financial district, leasing remains "slow."
Washington, D.C., was the only growing metro property and jobs market back in 2009, when President Obama and his Democrats were pushing "stimulus" programs. But "we are relatively pessimistic" about metro Washington now, given Iraq and Afghanistan war cutbacks and the prospect of a Republican sweep in November — or continued divided government — that "would likely result in Federal budget cuts," Guinee adds.
Brandywine Realty Trust, Radnor, has suffered with the "soft" Washington and Philadelphia markets; growth, "if any, [will] come from occupancy gains" (its current vacancy rate is about one-eighth) "and not from rental rate growth," except maybe at the popular Radnor Financial Center, Guinee writes. And Philadelphia's Liberty Property Trust is "shifting" out of small-market offices and into warehouse and industrial properties.
Maybe that's the future: With finance and government remaining weak, warehouse and distribution companies (think Amazon.com) have "decided to ignore the global economic noise and proceed with running their businesses," Guinee concludes.
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