Wednesday, July 10, 2024

PwC's US Commercial Real Estate and Capital Deals 2024 Midyear Outlook (Video)

Industrial Vacancy Rate Hits Highest Level Since 2017 in New Jersey Capital

By Mateusz Wnek CoStar Analytics 

The Trenton, New Jersey, metropolitan area posted an average vacancy rate of 4.2% between 2021 and 2023, as newly completed logistics space was easily filled amid the pandemic. Lately, a significant supply-demand imbalance has pushed the measure to 7.7% as of July, the highest reading since the second quarter of 2017.

Tenants who overcommitted to space beyond their long-term needs, such as third-party distributors, have recently been recalibrating their footprints. Markets such as Trenton, Northern New Jersey, and New York have all seen negative absorption, or change in occupied space, totaling at least negative 1 million square feet over the past year.

Across the Trenton area, the second quarter of 2024 culminated in the weakest quarterly showing for industrial space demand since the last three months of 2014. The period also capped 12 months of net absorption totaling a negative 1.1 million square feet.

Ongoing space expansion has added to the headwinds for existing industrial owners. The past year saw 1 million square feet finished across eight projects led by the Lawrence Logistics Center. The nearly 262,000-square-foot warehouse and light manufacturing facility opened its doors in December and is still unoccupied, asking $13.95 per square foot, triple-net.

Amid the supply additions, Trenton’s total industrial space now totals roughly 44.5 million square feet, representing an increase of 2.3% from last year. Properties are mostly concentrated in Trenton, Robbinsville and Hamilton, with the largest clusters situated primarily along routes 1, 130 and 206.

Digging deeper, Hamilton has led the metropolitan area in move-ins and move-outs over the past year. However, move-out activity has far outpaced the amount of space occupied, resulting in a net absorption total during the past 12 months of negative 657,000 square feet. Other notable weak spots were Ewing (-227,000 square feet) and Lawrenceville (-207,000 square feet).

The absence of a demand catalyst has recently weighed on leasing activity across Trenton. For the 12 months through June, leasing volume has decelerated sharply to just 470,000 square feet, down from 3.1 million square feet in the comparable period last year. Accordingly, move-in totals will be limited through early 2025, resulting in average vacancy hovering well above 7% in the near term.

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Sunday, July 7, 2024

J.G. Petrucci breaks ground on Bucks County warehouse, acquires another in Philadelphia

By Paul Schwedelson – Reporter, Philadelphia Business Journal

J.G. Petrucci Co. has broken ground on a 320,250-square-foot warehouse in Bucks County, another example of the firm’s belief in industrial properties along the East Coast.

Asbury, New Jersey-based J.G. Petrucci, along with Boston private equity firm Cabot Properties, are developing the warehouse distribution center at 4626 Somerton Road in Bensalem, near the intersection of I-276 and Route 1.

J.G. Petrucci Co. also recently acquired an industrial building at 717 Callowhill St. in Philadelphia for $8.6 million, according to property records. The building is leased by Grainger Industrial Supply. J.G. Petrucci plans to own and operate the building as is without redeveloping it, a company spokesperson said.

The property’s location, just north of the Vine Street Expressway and near the Benjamin Franklin Bridge, and Grainger’s tenancy attracted J.G. Petrucci to buy the property.

Similar to the Callowhill property, J.G. Petrucci is anticipating a single tenant leasing the future Bensalem warehouse.

“4626 Somerton Road is strategically positioned for warehouse, distribution and manufacturing users alike,” J.G. Petrucci Project Executive Dominick Baker said in a statement. “The project provides significant utility capacity, a strong labor pool and premier access to major Northeastern cities and beyond.”

Construction financing was arranged by JLL, which is also handling the leasing. J.G. Petrucci declined to share development costs. The project is planned to be completed by the end of 2024. J.G. Petrucci is using its in-house firm Iron Hill Construction Management for the project.

Full story:

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Wednesday, June 26, 2024

Demand for Industrial Space Hits a Speed Bump in Pennsylvania's Lehigh Valley


By Brenda Nguyen Costar Analysis

Despite tremendous demand for Lehigh Valley warehouse and distribution space over the last three years, the regional industrial market has hit a speed bump in the first half of 2024, a trend that mirrors other in-demand industrial hubs nationwide.

Nationally, absorption of industrial space in the first half of 2024 is 70% lower than the same period in 2023. In the Lehigh Valley, the decline has been even more drastic, hitting -1.4 million square feet in negative absorption—the net change in occupied space in the last 12 months.

Rising business expenses, a housing slowdown and the stretched health of the consumer have contributed to the pullback in demand for industrial space in recent quarters. The slowdown has coincided with 3.2 million square feet of new industrial space hitting the market, resulting in a 2% year-over-year increase in vacancy.

Furthermore, none of the 13 speculative industrial buildings under construction in the Lehigh Valley region had yet to secure a tenant as of late June, a stark contrast to prior years when major companies such as Shopify, Uline, Kenco Logistics and Grainger all signed leases for industrial buildings before they had been completed.

NorthPoint Development’s one-million-square-foot building at East Valley Logistics Park in Nazareth is the largest speculative industrial project in the works. Construction began on the mega-warehouse in the summer of 2023 and is slated for completion in mid-2024. The space has been listed on the market for over four years since it was in the proposal phase.

Among existing buildings, Prologis’s Lehigh Valley East in Northampton, another one-million-square-foot facility completed in 2023, remains the largest block of industrial space available in the market and has also been listed for over four years.

In recent months, more tenants have opted to lease existing buildings. According to brokers, prospective tenants prefer to be able to walk through the completed building before committing to a lease. And they also believe they are more likely to secure favorable terms for existing space, especially if the owner has sat on a vacant property longer than anticipated.

Major recent deals signed in existing buildings include Carbel's deal in April for a 470,000-square-foot building at the JW Industrial Park, which was built in 2022 and on the market for over three years. Before that, in January 2024, Glenmark Pharmaceuticals leased a 160,000-square-foot building that was completed in April 2023 and was on the market for 18 months.

While the industrial space market has cooled recently, the region's track record and growing investor interest suggest a promising long-term outlook. Even with the slowdown, the overall industrial vacancy rate remains a modest 6%, lower than the national average of 6.5%. Based on historical demand, Lehigh Valley's surplus industrial inventory could be absorbed within a couple of years.

Thursday, June 20, 2024

New York developer plans 150,000-SF self-storage facility in Northeast Philadelphia

 By Ryan Mulligan – Reporter, Philadelphia Business Journal

A four-story, 152,720-square-foot self storage facility is being proposed in Northeast Philadelphia at the corner of State Road and Cottman Avenue.

Brooklyn-based Asset Realty and Construction Group is planning the project at 7240 State Road, according to documents filed with the city. In total, the project would span 152,720 square feet and have 77 parking spaces, catering to both commercial and residential customers, documents show. The project is slated to go in front of Philadelphia's Civic Design Review Committee on July 2.

An entity tied to Asset Realty and Construction Group purchased the nearly 3-acre site for $3.35 million last July, according to Philadelphia property records. The company could not be reached for comment.

At the corner of State Road and Cottman Avenue, the parcel sits between I-95 and railroad tracks in the Tacony neighborhood. The parcel is surrounded by other industrial sites, including an EZ Storage Philadelphia about a block north.

The self-storage facility "seeks to support local businesses, homeowners, and tenants," according to the documents filed with the city.

The project would mark Asset Realty and Construction Group's foray into the Philadelphia market. In its portfolio, the company has multifamily developments in several New York neighborhoods, and a number of industrial storage projects in North Jersey.

The company's CEO, Dino Tomassetti Jr., built a portfolio of self-storage facilities in the New York metro area, ultimately creating the Storage Fox brand. The latter sold for $152 million to Southern California-based Clutter in 2019. In 2020, Tomassetti founded Asset Realty and Construction Group.

Full story:

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Wednesday, June 12, 2024

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Philadelphia’s Tight Suburbs Keep Lid on Apartment Concessions

 Growing Population Further Bolsters Renter Demand

By Brenda Nguyen Costar

The percentage of suburban Philadelphia apartments offering rental concessions has hit the lowest level since the end of 2022. This follows a stretch of strong renter demand in the first half of 2024, resulting in fewer property managers offering concessions amid the spring leasing season.

As of May 2024, only 6.7% of suburban Philadelphia apartments were advertising concessions, ranging from waived fees to a month of free rent. This starkly contrasts with the 16.5% of apartments in the city of Philadelphia offering concessions.

Historically, apartments in Philadelphia's suburbs, which encompasses Bucks, Chester, Delaware and Montgomery counties, have boasted lower vacancy rates than the city. The combination of limited new housing developments and a growing population has kept apartment conditions in Philadelphia's suburbs consistently tight.

As of the second quarter, the suburban apartment vacancy rate was 5.6%, 110 basis points below the region's overall apartment vacancy rate and 370 basis points below the city's vacancy rate.

The number of apartments offering concessions has dropped significantly for both urban and suburban apartments since the end of last year. In December of 2023, more than 55% of all apartments in Philadelphia's downtown were offering rental concessions. The percentage of suburban apartments offering concessions also peaked during the same period at 18%.

While the 3,200 units under construction across Philadelphia's suburban counties will likely offer a some level of concessions during lease-up, this only accounts for 2.5% of overall inventory. With the exception of newly completed projects, concessions are likely to remain limited when compared to the city where the competition for renters remains high.

Monday, June 3, 2024

Two Pennsauken warehouses sell for $23 million as part of larger acquisition

 By Paul Schwedelson – Reporter, Philadelphia Business Journal

A pair of Pennsauken warehouses sold for $22.95 million as part of a larger acquisition by an upstate New York's food products manufacturer.

Baldwin Richardson Foods announced in April that it acquired Pennsauken Packing Co., and its warehouses at 1550 and 1600 John Tipton Blvd. in Pennsauken. The price of the warehouses has now been revealed via Camden County property records. Pennsauken Packing was a subsidiary of LiDestri Food and Beverage.

The two buildings total 240,000 square feet with space for manufacturing, warehousing and office use.

Macedon, New York-based Baldwin Richardson Foods, a private labeler and custom ingredients manufacturer for the food and beverage industry, declined to share how much it cost to acquire Pennsauken Packing Co.

When the firm announced the acquisition, executives said the move would enhance Baldwin Richardson’s aseptic beverage operations. Aseptic foods and beverages don’t need to be refrigerated.

Full story:

CRE loan delinquency still growing but at slower pace as lenders rework deal terms

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

Commercial real estate loan delinquencies are still rising but at a slower pace than they have been since the post-pandemic disruption in the industry.

Overdue commercial real estate loans tied to U.S. banks increased to 1.25% in the first quarter — a new cycle high, according to a recent analysis by S&P Global Market Intelligence. Even so, the quarter's 10 basis-point increase from the prior quarter was slightly less than the 11 basis-point increase for the fourth quarter of 2023 and a 21 basis-point jump in the third quarter of last year.

Commercial real estate loan delinquencies are being closely monitored as the office market in particular is seeing drops in occupancy and value amid a higher interest-rate environment that looks likely to persist for longer than expected.

Many lenders have reworked terms with borrowers, including on troubled loans, or have extended the maturity date. Despite that, there's palpable concern about what happens to the $929 billion in outstanding commercial mortgages across all CRE lender types the Mortgage Bankers Association estimates will mature this year.

"Although higher interest rates continue to challenge commercial real estate, there are plenty of reasons for cautious optimism that a turnaround is on the horizon," Wells Fargo & Co. economists wrote in a May 28 note. "What's more, the slower pace of price declines is a sign that the air of pessimism surrounding the asset class is beginning to dissipate as less restrictive monetary policy comes closer in view."

But lenders remain cautious about their exposure to commercial real estate, prompting slower lending activity overall in the sector.

Year-over-year commercial real estate loan growth was 3% in the first quarter of the year. That's a slight uptick from the 2.9% growth in the fourth quarter of last year but well below the 12.1% peak in the third and fourth quarters of 2022, according to S&P Global.

Brent Maier, real estate advisory leader at Baker Tilly, told The Business Journals in an interview last month traditional, regulated lenders are having to set aside or increase their reserves for potential write-offs or loan workouts.

Full story:

Friday, May 24, 2024

Bazzini Signs Sweet Deal at 860 Nestle Way Breinigsville, PA

By Melannie Skinner CoStar Research

The A. L. Bazzini Co., commonly known as Bazzini, is a manufacturer and distributor of nut, dried fruit and chocolate confections based in Allentown, Pennsylvania. The snack firm signed a long-term lease for just under 130,000 square feet of warehouse space at 860 Nestle Way in Breinigsville, Pennsylvania, to expand its operations.

Founded in New York City in 1886, Bazzini is one of the oldest nut companies in the U.S. It has long supplied major event venues in New York with its nuts, such as Madison Square Garden and Yankee Stadium, as well as distributed its products through grocery and convenience stores. The firm has had a major presence in Allentown since 2011 when relocated its nut-roasting operations there. That same year it acquired Barton's Candy Co., a chocolatier and candy maker founded in 1940.

The firm's new space is within the 607,320-square-foot Lehigh Valley West Building Park owned by Prologis and located within one of the Lehigh Valley’s Foreign Trade Zones, enabling importers to achieve greater supply chain efficiencies and cost savings. Bazzini is expected to take occupancy this summer.

Monday, May 20, 2024

Philadelphia Leads the Keystone State in Industrial Construction

By Brenda Nguyen Costar Analytics 

Demand has flooded Pennsylvania's top industrial markets in recent years, prompting a wave of new development. Last year's record number of completions capped more than 110 million square feet of new industrial space added over the past four years in Philadelphia and the nearby areas of Lehigh Valley, the I-81 Corridor, Harrisburg and York.

As the ninth largest U.S. industrial market, the Philadelphia region experienced the most significant addition of industrial inventory, gaining more than 250 new buildings measuring 63 million square feet.

Taking the 14.2 million square feet of industrial demolitions into account and Philadelphia's net gain in inventory since the first quarter of 2020 totals 48.8 million square feet, an 8.5% increase. Half of this new industrial space is concentrated in the southern New Jersey counties of Burlington, Gloucester, Camden and Salem, where supply-driven vacancy has been increasing.

The Philadelphia metropolitan area has attracted the heaviest regional demand for industrial space from retailers, manufacturers and third-party logistics companies seeking to locate near major ports, airports and dense population centers along the Northeast U.S. corridor. Additionally, average rents for industrial space are about 30% lower than in Northern New Jersey, making Philadelphia a cost-effective alternative for occupiers.

Further north, the industrial hub of Lehigh Valley has followed a similar development trend, adding a net gain of 26 million square feet of industrial space across 74 buildings with very little space demolitions. This resulted in an impressive 18.6% increase in the region's industrial inventory, making it the fastest-growing industrial market in Pennsylvania.

Lehigh Valley's proximity to New York and Philadelphia has positioned it to capture spillover industrial demand from these costlier port markets. In recent years, the region attracted some of the country's largest industrial leases, which exceeded one million square feet at times. These headline leases have grabbed the attention of developers hoping to capitalize on the high demand.

As the availability of suitable land grows more limited in the mountainous region of Lehigh Valley, industrial development has shifted to the neighboring I-81 Corridor or Scranton. This inland region offers even deeper rent discounts to its port neighbors.

Over the past four years, the I-81 Corridor gained 17.2 million square feet across 47 buildings, a 17% increase in inventory, to become the second fastest-growing industrial market in Pennsylvania.

Meanwhile, Harrisburg gained 9.9 million square feet across 21 buildings, and York gained 9 million square feet across 30 buildings. Modest construction and continued demand have resulted in a very tight industrial market in Harrisburg and York, which have among the lowest industrial vacancy rates in the country.

Industrial development activity is expected to decelerate due to elevated interest rates and an accumulation of unleased inventory in some markets. Construction starts in these five Pennsylvania industrial areas have already decreased by 50% compared to the previous year, setting the stage for a quieter yet still active period of industrial completions through 2025.

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Friday, May 17, 2024

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$40 million marina, entertainment complex planned for Northeast Philadelphia

 By Emma Dooling – Reporter, Philadelphia Business Journal

A new marina and entertainment complex is being planned along the Delaware River in Northeast Philadelphia.

Dana and Ron Russikoff, the founders of Rodan Enterprises LLC, plan to develop a full-service marina with restaurants and a yacht club at 5190 Princeton Ave. near the Tacony and Mayfair neighborhoods. The duo recently acquired the 6-acre parcel that will house the project, called One River Marina, for $1.15 million, Dana Russikoff told the Business Journal.

The Russikoffs are well-versed in the boating world, having founded SureShade, a company that makes retractable sunshade systems for boats throughout North America and Europe. Indiana-based Lippert Components Inc., the maker of parts and accessories for recreational vehicles, acquired the Philadelphia business from the Russikoffs in late 2019.

Russikoff said the development, which is years in the making, will be a place for the local community to enjoy as well as a "world-class destination" for boaters located between two other waterfront destinations along the river: Penn's Landing to the south and Bristol Wharf to the north.

“This project checks every box for what is surely becoming a new age of 'nautical tourism' for the Delaware River – recreation, access and infrastructure development – for local residents and especially for boaters," Russikoff said in a statement.

Early estimates for One River Marina currently put the cost of the project between $30 million and $40 million.

One River Marina, located just north of the Tacony-Palmyra Bridge, is in the early stages of planning and will be completed in phases. The first phase of the project consists of the construction of a new bulkhead, docks, slips, fuel and boat storage. That portion is expected to be complete by the spring of 2026 in time for celebrations of the nation's 250th anniversary in Philadelphia, a series of events expected to draw a significant amount of tourists to the region.

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New York firm pays $90M for Phoenixville apartment complex

 By Paul Schwedelson – Reporter, Philadelphia Business Journal

An entity tied to New York financial services firm Cantor Fitzgerald paid $90.3 million to acquire a large Phoenixville apartment complex, marking the company's latest investment in the Philadelphia region.

Cantor Fitzgerald bought the 349-unit Riverworks complex from Pantzer Properties, according to Chester County property records. The development sits on 30 acres that had been part of the shuttered Phoenix Steel Co. and is located on the north side of French Creek.

Located at 45 N. Main St., the Riverworks complex is within walking distance of Phoenixville's restaurant and retail area and has access to the Schuylkill River Trail.

Fort Washington-based homebuilder Toll Brothers developed the six-building complex for $66.5 million in 2016 and sold it to Pantzer Properties for $77.8 million in 2019. The project is one of the largest developments in Phoenixville.

Riverworks includes an 11,000-square-foot clubhouse, a pool and a climbing wall.

The apartment property is managed by Harbor Group Management, a real estate investor with more than 58,000 apartments in its portfolio, according to the company. A spokesperson for Harbor Group declined to comment when asked if it is a co-investor with Cantor Fitzgerald on Riverworks, but the companies previously partnered on the acquisition of a 229-unit apartment community in Westchester County, New York, in November.

Full story:

Thursday, May 16, 2024

Signs of More Office Demand Raise Optimism for Recovery

 By Katie Burke CoStar News

Brandywine Realty Trust CEO Jerry Sweeney doesn't consider himself an optimist when it comes to the end of the national office market's "frustratingly slow" slog. But even the head of one of the largest U.S. real estate investment trusts sees early signs of what he said could be a turnaround — or at least a clearer picture of where the market may be headed.

A steady pickup in leasing, a burst of steeply discounted sales, and hints from large institutional investors have combined in recent months to provide an improved outlook that commercial real estate stakeholders such as Sweeney say they haven't had since the COVID-19 pandemic's outbreak more than four years ago. There's little debate the market faces unprecedented challenges, but some developers, investors and landlords are edging forward.

"There are a lot of stress factors impacting our business, so sure, from that standpoint it isn't as rosy as we'd like," Sweeney told CoStar News. "But now we figure out our relative positioning in all of it, what opportunities that presents and how we can be aggressive in taking advantage of them."

Across the United States, commercial property leasing has fallen nearly 15% from its annual average in the years leading up to the pandemic. Arrested sales volume that afflicted various office markets for the past several years is beginning to settle into what some real estate professionals say could be a post-pandemic reality. Companies such as Kroger, UPS, Amazon and IBM have formalized return-to-office policies and are now more willing to commit to longer-term lease deals.

Smaller investors, lured by record-low prices and the chance to acquire properties previously out of reach, have closed a flurry of deals since the start of 2024 to help reset valuation expectations. And, while interest rates remain elevated, real estate professionals say the shock from the string of increases ended last year has since worn off, making it easier to map out a strategy for the year ahead with a bit more certainty.

"We've seen the worst from a capital markets perspective, and while we might not be at the bottom just yet, we're close to it," said Kevin Shannon, Newmark's co-head of U.S. capital markets, told CoStar News. "Rates went up so fast that you didn't know how high was high or what your cost of capital was, and that's scary. People have a better understanding now, and while the impacts from the pandemic means the healing process will take longer, there are more signs of certainty and we can at least now see the bottom and rebuild from there."

Even Blackstone, the world’s largest commercial property owner, called 2023 a cyclical bottom for commercial real estate and acknowledged the hard-hit sector may present some opportunities for the firm to dive back in after cutting its U.S. office exposure to just 1% of its global real estate portfolio.

The New York-based private equity giant is now looking to buy “super-high-quality” office buildings at depressed prices, Jonathan Gray, Blackstone’s president and chief operating officer, said at New York University Schack Institute of Real Estate’s recent annual REIT symposium.

To be clear, investment volume across the national office market is still at a low not seen since the likes of the Great Recession or the dot-com bust. But in the challenging sales landscape, Phil Mobley, CoStar Group's national director of market analytics, said a silver lining is that this cycle's investment activity appears to at least be near bottom.

Sales volume has plummeted by more than 55% over the past year to $35 billion, according to CoStar data, a nearly 15-year low. Yet, on a quarterly basis, sales activity held steady throughout 2023 and even ticked up in the early months of 2024 as significant discounts pushed an expanding group of investors to take advantage of more deals.

Leasing Gains Traction

For Brandywine's Sweeney, uncharacteristic optimism has emerged as tenant demand for office space recovers from its pandemic-era hibernation.

The Philadelphia-based real estate investment trust, overseer of a portfolio spanning more than 22 million square feet across Pennsylvania, Texas and the Washington, D.C.-area, reported tenant tour activity in the first few months of this year jumped nearly 50% compared to its previous quarterly average. More than half the deals the developer has signed at the start of the year are attributable to companies looking to "move up the quality curve," Sweeney said, trading spaces in older buildings for offices in newer ones.

Other developers and landlords, especially those with portfolios concentrated with properties on the higher end of the quality spectrum, are also reporting an uptick in tours and leases that, in some cases, echo activity seen before the pandemic. Boston Properties, one of the nation’s largest office landlords, reported its weighted average lease term had climbed to more than 11.5 years in the first quarter, the highest since COVID-19 disrupted the office market in 2020.

In New York, a market Newmark's Shannon said is the furthest along in its recovery from the pandemic, about 250 tenants are looking to sign on for roughly 22 million square feet of office space, according to data from the brokerage Raise. About 45% of that demand is being driven by companies in the financial services or legal industries, while about 17% of that is fueled by those in technology.

Vornado Realty Trust and SL Green Realty, Manhattan’s largest office landlord, both said on first-quarter earnings calls they have started to see a pickup in interest from the tech industry in New York after a quiet period.

And in Silicon Valley — an area dominated by tech giants that were quick to offload significant chunks of office space — more than 80 tenants are hunting for a total of more than 4.2 million square feet, according to Raise data. More than 3.1 million square feet of that is for space exceeding 100,000 square feet, signaling that a growing pool of tenants are once again willing to commit to large spaces after several years of dramatically shrinking their real estate portfolios.

The turnaround in leasing follows several years of companies trying to figure out where and how employees want to work — and how much space they actually need to accommodate those shifts.

That is now beginning to settle, Gensler co-chair Diane Hoskins told CoStar News, meaning companies are now more willing to invest in high-quality spaces to try to make their offices destinations worthy of a commute, not a daily obligation.

"There is more certainty and clarity about the value of workspaces," the architecture firm executive said. "We're heading toward an equilibrium where tenants are still looking for value but are also willing to invest in premier buildings that are helping to make it easier getting employees to want to come back to an office. A lot of dynamics have changed, and companies have far more confidence in decision-making now."

Some tenants are committing to office space for the long term, even if it is for less than what they previously occupied. Tenants collectively signed on for about 395 million square feet last year, according to CoStar data, about 13% below the annual average reported in the years leading up to the pandemic's 2020 outbreak. What's more, those deals are about 16% smaller on average than those signed between 2015 and 2019, exacerbating the vacancy challenges and the available space across the country's largest office markets.

Hunting for a Deal

After years of tabling some deals or sticking to the sidelines, a growing pool of private buyers, owner-users, local firms and smaller asset managers are scooping up properties at a fraction of their previously traded prices, helping to provide some clarity as to where valuations are ultimately expecting to settle.

Large institutional firms such as Blackstone, Clarion Partners and Brookfield are still selling properties at discounted prices and have yet to return to the market as buyers. However, Shannon said more are now talking about jumping back in compared to this time last year.

"Institutions typically come in after the market has clearly bottomed," he said. "They're more conservative than other buyer types, but last year almost none of them were looking at office and this year, they're discussing it. That's not to say they're buying yet, but there's progress in the fact that they're looking again."

A joint venture between New York Life Real Estate Investors and investment firm Bridgeton, for example, earlier this month closed a $22 million deal to acquire 410 Townsend St., a 78,000-square-foot office building in San Francisco's tech-concentrated SoMa area that has a long history of housing early-stage startups. The building last sold in 2019 when seller Clarion paid nearly $86 million, and this deal underscores the growing eagerness among investors in getting in on the ground floor of cities' post-pandemic recoveries — and fear in missing out on a major deal.

"This is the start of the recovery for the San Francisco real estate market," Albert Pura, New York Life Real Estate Investors' senior director of transactions, said in a statement. The Townsend Street building offers the joint venture “the opportunity to acquire a best-in-class” building at a significant discount, a sentiment echoed among other buyers behind deals that have recently closed in top-tier markets such as San Francisco, Boston, Chicago, Los Angeles, New York and Washington, D.C.

There is still plenty of uncertainty stemming from issues such as sticky inflation and ongoing job cuts, all of which could derail what some office stakeholders say they hope are early signs of a market rebound.

Cyrus Sanandaji, the co-president and CEO of real estate investment firm Presidio Bay Ventures, said any sense of optimism in the broader office market will also need to be broken down on a market-by-market level given each region's specific set of both challenge and opportunities.

"I wouldn't paint the entire U.S. office market with a broad stroke [since] there's so much nuance that will impact the recovery of each market," he said. "However, in general, the increasing pushback against remote work in most creative and apprentice-based industries is very promising."

The firm last year was one of the first investors to close an office deal since the early days of the pandemic, acquiring the building at 60 Spear St. for about $41 million, or less than one-third of the property's previously sold price tag.

Presidio Bay, continuing to focus on opportunistic deals downtown, is now in the early stages of putting together plans to invest another roughly $4 million to overhaul the Spear Street property into an "office resort," building in hospitality minded amenities such as a rooftop bar and restaurant, sauna rooms, cold and warm-water plunges, saltwater floating pools, and spaces for both coworking and events.

The CEO said he's mindful of the challenges that still face the city and its record amount of available office space, but the chance to position the firm and its portfolio at the forefront of what he said is "a true urban renaissance" is worth the financial risk.

"In San Francisco specifically, we’re seeing the entire ecosystem, from investors to entrepreneurs, embrace the return to office and recognize how much you gain" from being back in a physical space, he said. "This is what’s driving so many to start searching for office space and signing new leases. We need a lot more of it, but when it turns back on, it’ll ramp up very quickly and beyond what most people are anticipating.”

Friday, May 10, 2024

Bill Rudin on state of commercial real estate, industry challenges and impact of high rates (Video)

Industrial vacancies are rising, but one heavyweight's activity could signal a reversal

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

The U.S. industrial market appears to have normalized after an unsustainable clip of growth during the pandemic and may find its post-pandemic bottom this year, as supply continues to outpace demand in many markets.

Amid that softening, Inc. (Nasdaq: AMZN), an informal "first mover" in the industry, is showing signs of restarting expansion of its industrial real estate holdings.

Industrywide, the first quarter of the year brought the sixth consecutive three-month period of declining net absorption, at 27.9 million square feet absorbed nationally. The vacancy rate also continued to rise, to 6.1%, thanks to lower tenant demand and the continued trend of higher-than-average construction deliveries.

Some market trackers put the national vacancy rate a little higher. By Savills' estimate, for example, it's at 6.7%. Some of the nation's top industrial markets are posting double-digit vacancy rates, including Savannah, Georgia, at 12.1%; Phoenix, at 11.8%; and Dallas-Fort Worth, at 10.8%.

And while Mark Russo, vice president of industrial research at Savills, said it's likely vacancy will continue to rise in the coming quarters, conditions may be setting the stage for a recovery in the broader sector medium term, especially heading into 2025.

A resurgence in demand from industries like e-commerce is among the indicators that gains could be ahead for the industrial market, and that's where Amazon's recent activity comes into play.

Amazon is among the nation's biggest users of warehouse space. So far this year, it's leased almost 15 million square feet nationally, according to Russo. That follows a period of slower growth from the company, and even efforts by Amazon a few years ago to put some of its space back on the market.

While one company's real estate decisions shouldn't be overemphasized, Amazon's activity continues to be a closely watched as a possible sign of where the broader market may be headed.

"It is interesting that they’re getting more active," Russo said.

By Savills' measurements, Amazon's active U.S. facilities are projected to grow by 43 million square feet this year, up from growth of less than 30 million square feet last year. In 2020 and 2021, when e-commerce sales skyrocketed, Amazon's active U.S. facilities grew by about 100 million square feet each of those years.

E-commerce more broadly will continue to see tailwinds, thanks to demographic changes and a need to address supply-chain "Whac-a-Mole" caused by events like the Baltimore bridge collapse earlier this spring and global conflicts, Russo said.

And while online sales have slowed since the height of the pandemic, e-commerce activity still accounted for 15.6% of total retail sales in Q1 2024 — up from 14.4% in Q2 2022, according to U.S. Department of Commerce data.

Full story:

Wednesday, May 1, 2024

Philadelphia sits among nation's elite life sciences hubs in new Colliers rankings

 By John George – Senior Reporter, Philadelphia Business Journal

The Philadelphia region takes fourth place in a new ranking of the country's top life sciences hubs on the strength of its talent pipeline and recent real estate activity.

The analysis conducted by the commercial real estate services firm Colliers International focuses on a region's ability to support and sustain industry growth using factors such as venture capital funding, National Institutes of Health grants and biomedical degree completions. The study, which examined 18 markets, also takes into account each region's life sciences real estate market, specifically its office and lab space inventory along with the amount of space under construction and the space absorbed by companies over the past three years.

Boston holds the top score in the Colliers analysis, followed by the San Francisco Bay area and then San Diego. Philadelphia's fourth-place finish puts it ahead of New Jersey, New York City and Seattle. Rounding out the top 10 are Raleigh/Durham in the eighth spot, followed by suburban Maryland and Chicago.

Philadelphia's highest scores are in net property absorption, where the region ranks third, and in three categories where it ranks fourth: biomedical degree graduates with 3,758 in 2022; office and lab space inventory with 23.7 million square feet; and square footage under construction at 2.5 million square feet.

The local region's NIH grant funding of $1.4 billion and venture capital investments of $547 million rank sixth and seventh, respectively.

Full story:

Tuesday, April 30, 2024

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In challenging real estate market, top developers say Center City 'could go in either direction'

 By Ryan Mulligan – Reporter, Philadelphia Business Journal

Three of Philadelphia's leading developers say the commercial real estate industry is at a delicate point and needs support from the business community.

PMC Property Group's Ron Caplan, Keystone Development and Investment's Bill Glazer and Alterra Property Group's Leo Addimando spoke at a panel hosted by Business Clubs America of Philadelphia in front of hundreds of attendees at the Kimmel Center on Friday. Their three companies collectively own more than 7,000 apartments in Philadelphia and operate some of the region's prominent office buildings, with billions invested into the city.

The developers called for workers to return to the office five days per week and for the members of the audience — an exclusive, membership-based group of business stakeholders — to continue to spread optimism about the state of Center City amid a precarious commercial real estate environment.

Glazer juxtaposed St. Louis' story of high vacancy rates and an empty downtown with what he said is a resurgence and renewal in Detroit. While the business district in St. Louis has become increasingly desolate, office and residential development is booming in downtown Detroit.

"Philadelphia today can straddle both stories," Glazer said. "It could go in either direction."

Addimando said that without workers in Center City's office buildings, the real estate begins "to degrade." The solution to that issue is simple — to bring people back to the office — but the developers said that needs to start with business leaders.

The larger challenge is what to do with space that's not new and not leased, Addimando said.

"That's a very hard problem to solve, but I think Philadelphia has a manageable amount of what I would call functionally obsolete office that we can find better uses for," Addimando said. "Other cities have a much bigger problem than we do here, so I'm actually pretty optimistic. But start by getting your people back to work five days a week. That'll make a big difference."

Caplan said developers and property owners are challenged to be nimble, and they will rise to that challenge.

"The problem for everybody in the real estate business is what do you do with all the available space that's been created," Caplan said. "Not because there's been a change or a shift in the amount of business being done in Philadelphia. We are not losing tenants to the Sunbelt. But it's just, 'What is going to happen in the normal course of business as properties or vacancy opens up?' It's incumbent upon the three of us to figure out what's going to happen. And it's incumbent upon really everybody in this room to say, 'I could use an extra 10 feet' and we would appreciate that."

Full story:

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Wednesday, April 24, 2024

King of Prussia office occupancy hits new high, even as Center City buildings struggle to attract tenants

 By Paul Schwedelson – Reporter, Philadelphia Business Journal

King of Prussia business leaders are cautiously optimistic as office occupancy in the growing suburban center continues to increase.

Occupancy in Upper Merion Township office buildings has hit 89.3%, its highest point since the King of Prussia District began tracking it in 2011, according to data from CoStar. That occupancy rate doesn’t include buildings smaller than 10,000 square feet or owner-occupied buildings but provides hope for the future of the suburban office market.

While King of Prussia District CEO Eric Goldstein is pleased with the results, he recognized 2025 and 2026 will be key years because there are more pre-pandemic office leases that have yet to expire.

So far, 85% of employees have returned to in-office work compared to pre-pandemic numbers, according to the King of Prussia District’s recently released annual report.

“Companies and their employees want to be in locations that are amenity-rich,” Goldstein said. “If you look around the suburbs, I really can’t think of any other municipality that is more rich with amenities than King of Prussia or Upper Merion Township. Dining, retail, hospitality, entertainment, recreation, there’s an abundance. … I would think that explains why this market is doing as well as it’s doing.”

King of Prussia is the largest suburban office submarket in the Philadelphia region and ranks as the third largest employment center behind Center City and University City.

Occupancy in the district has been mostly trending up since the third quarter of 2022 when the rate was 83.6%. While remote and hybrid work has taken hold in the past four years, it’s taken time for office leases to expire. Before 2020, the highest occupancy rate recorded by the King of Prussia District was 89% in the fourth quarter of 2018.

King of Prussia's office occupancy outpaces the national rate of 84.2% and Philadelphia metro rate of 85.5% when excluding owner-occupied buildings and buildings smaller than 10,000 square feet, according to CoStar.

The largest office leases recently signed in King of Prussia include UGI Corp.’s 100,820-square-foot lease at 500 N. Gulph Road and Eigen X’s 21,339-square-foot lease at 1030 Continental Drive.

Full story:

Monday, April 22, 2024

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Law Firms Cutting Space, Philadelphia Office Market is getting Hammered

By Jeff Blumenthal – Senior Reporter, Philadelphia Business Journal

Since the onset of the Covid-19 pandemic, Philadelphia’s largest law firms have been on a downsizing tear in Center City.

Blank Rome cut 41% of its office space at One Logan Square, Stradley Ronon Stevens & Young trimmed 25% off its space at One Commerce Square, and Dechert lopped off 43% at Cira Centre.

Morgan Lewis & Bockius reduced its footprint by 29% in the move to its new headquarters at 2222 Market St., Rawle & Henderson trimmed 48% when it relocated from the Widener Building to 1500 Market, and BakerHostetler sawed off 44% after relocating from Cira Centre to 1735 Market.

Post & Schell recently reduced its office space by 40% when relocating to Three Logan Square, and Fox Rothschild is up next with plans to chop off 41% in a move to Two Commerce Square later this year.

Those eight law firms will have cut their combined Center City footprint by almost 500,000 square feet, taking 36% less space in new lease agreements, according to data. An additional 1.9 million square feet occupied by 13 other law firms across Center City will come up for renewal by 2032, with most of those firms assuredly taking significantly less space in their new leases.

Being that law firms are among the largest, if not the largest, consumers of Center City office space, there is a question about how this accelerated move toward efficiency will impact both the legal industry and an already shaky office market.

Tony Rossi, head of the Philadelphia law firm practice at CBRE, said much of the movement is motivated by a perceived flight to higher quality, often newer buildings that are more adaptable to modern law firm space. For example, had Fox Rothschild chosen to stay at its longtime home at 2000 Market St. instead of relocating to 2001 Market, he said it would have required completely gutting what had become outdated space and that would have caused a major disruption to work. With that construction being done in stages by necessity, it would have added 25% to 30% to costs.

“There’s an incentive to relocate at that point,” Rossi said. “When it’s 25- to 30-year-old space, it’s just not going to be efficient and it’s going to be very dated. And for firms right now, I would say their biggest priority when they’re looking at their real estate is the attraction and retention of attorneys.”

Thanksgiving Day problem

Law firms are trying to remain competitive both in how they consume office space and recruit and retain talent by making the space as compelling as possible. Real estate is the second largest line item expense behind personnel. Existing strategies to cut space due to technology eliminating the need for paper files, law libraries and large pools of administrative assistants has been accelerated by the post-pandemic hybrid work arrangements.

Most firms say they expect lawyers and staff to work from the office three days a week. Few are actually enforcing those policies — meaning there are no ramifications for those not complying. As a result, firms need to make their space both compelling and cost-effective.

Midsize and large full-service firms are focused on driving their space-per-lawyer ratio to 500 to 550 square feet, compared to 650 to 750 square feet per lawyer a decade ago and roughly 750 to 850 square feet in the early 2000s. Much of that has come from changing to single-size lawyer offices, which Blumenfeld said gives them a 10% to 15% gain in space efficiency. The interior of floor plans that were once filled with secretarial stations, paper storage areas and word processing departments is now available for other uses, creating an inefficiency that Blumenfeld said has partly resolved by moving offices for professional staff and even some lawyers to the interior. That is a revolutionary idea for law firms that traditionally set their space needs by counting the number of lawyers with the available windows in an office.

“It took a couple of firms to do it first, because no one wants to be the first firm to put associates inside. But now it’s becoming more common.”

Full story:

Friday, April 19, 2024

High-Profile Philadelphia Office Tower Faces Deepening Vacancy Woes With Tenant Exodus

By Katie Burke CoStar News

An iconic downtown Philadelphia office tower is bracing for the loss of another anchor tenant with a law firm's plans to ditch its 111,000-square-foot space and relocate elsewhere in the city.

Saul Ewing, which has been based in the Centre Square complex at 1500 Market St. for half a century and is the property's fourth-largest tenant, confirmed it would be leaving its multifloor space at the property within the next couple of years as it prepares to move to another office tower just a couple blocks away. The decision will help align the company's space to meet the needs of its hybrid work policy, a spokesperson with the law firm said in a statement, adding it plans to make the shift sometime in 2026.

The firm's relocation means it will considerably shrink its corporate footprint in the city. Saul Ewing leased about 53,330 square feet for its future office at 1735 Market St., according to an Avison Young market report, roughly half of its existing headquarters space in Centre Square. The company's post-pandemic work policy allows most of its lawyers to commute to an office every Wednesday and four other days each month, a plan it has maintained since 2022 that "encourages" employees to venture into physical space but doesn't formally mandate it.

The move coincides with an ongoing trend across the national office market in which companies are adjusting, and often dramatically downsizing, their real estate portfolios to adapt to the declining use of their physical spaces. While there are companies still signing deals, they are now typically for smaller spaces in nicer properties.

Tenants collectively signed on for about 395 million square feet last year, according to CoStar data, about 13% below the annual average reported in the years leading up to the pandemic's 2020 outbreak. What's more, those deals are about 16% smaller on average than those signed between 2015 and 2019, exacerbating the vacancy challenges and onslaught of available space littered across the country's largest office markets.

The looming Saul Ewing vacancy is the latest blow for the two-building Centre Square complex, which spans more than 2.2 million square feet and — without factoring in Saul Ewing's pending relocation — is now less than 70% occupied, according to CoStar data. It fell into receivership a year ago when landlords Nightingale Properties and Wafra Capital Partners failed to pay off a $368 million loan.

The owners acquired the Market Street properties as part of a $328 million portfolio deal that closed in mid-2017. Wafra at the time was named InterVest Capital Partners.

The departure extends a string of other occupancy losses the Centre Square complex has faced in recent months. Dilworth Paxson, another law firm, is expected to relocate from its 83,100-square-foot office to about 50,000 square feet at One Liberty Place. Conrad O’Brien last November opted not to renew its lease for 40,000 square feet of Centre Square space, instead consolidating its Philadelphia office footprint as a result of a merger with fellow law firm Clark Hill.

Those departures compounded large vacancies by international insurance company Willis Towers Watson, investment management company Berwind and Comcast, which combined ditched more than 380,000 square feet from mid-2020 to August 2021.

Neither Nightingale Properties nor Wafra Capital Partners responded to CoStar News' emailed requests for comment.

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Tuesday, April 16, 2024

Philadelphia’s Multifamily Development Boom Starts To Cool


By Brenda Nguyen Costar

Philadelphia's apartment boom is cooling down after a record-breaking period of construction. As the spring leasing season kicks off, the number of new units under construction has shrunk by more than 30% compared to the peak in late 2022. This downshift reflects developers' and lenders' more cautious approach amid elevated interest rates, slowing rent growth and increasing supply-driven vacancies.

However, the recent pullback is not a complete halt. Current construction levels are still above the region's 10-year quarterly average of 12,800 units. While fewer new projects have broken ground in recent quarters, Philadelphia’s ongoing apartment development pipeline remains robust.

Between now and mid-2025, the region can expect between 2,000 and 3,000 units to be completed each quarter, with the majority located within the City of Philadelphia. The total in 2024 is expected to be the second-highest year of project completions, following last year's record, which will combine to produce plentiful new options in the market for renters.

Greater Center City continues to be a focal point for apartment development, boasting the region's largest multifamily project. Tower Investments' 1,111-unit cornerstone development, encompassing an entire city block just 12 blocks from City Hall, accounts for 6.5% of the region's units under construction. This mega-development ranks as the 11th largest ongoing apartment project across the U.S.

Beyond the city limits, Philadelphia suburban areas are also experiencing growth, albeit at a much slower pace. Cornerstone Tracy's 614-unit project at Oxford Valley Mall in Langhorne stands as the largest suburban development currently underway.

On the horizon, at least 17,200 units across 99 projects are in the proposal stage. Construction starts could pick up as interest rates stabilize, market confidence strengthens, and the surplus of units is absorbed. In the meantime, construction levels are rebalancing toward long-term market trends.

Thursday, April 11, 2024

Philadelphia’s Urban-to-Suburban Migration Hits a Three-Year Streak

By Brenda Nguyen Costar

The latest U.S. Census Bureau data reveals demographic shifts within the Philadelphia-Camden-Wilmington metropolitan area. While the overall region added more than 3,400 new residents between July 2022 and July 2023, closer analysis uncovers an urban-to-suburban migration trend.

Despite overall regional growth, the City of Philadelphia experienced another year of a shrinking population. The city's population declined by 1% in 2023, translating to roughly 16,300 residents for the third consecutive year, returning its population of 1.55 million to 2012 levels. This trend mirrors national population trends, reflecting a pandemic-induced migration from major urban centers such as New York City, Los Angeles, and Chicago.

While not exclusive to Philadelphia, a significant portion of former Pennsylvanians have relocated to other states such as Florida, New Jersey, New York, Virginia, and California.

Regionally, this urban out-migration has been offset by robust growth in the surrounding suburbs. The South New Jersey suburbs saw the most significant in-migration totals. Collectively they saw a 0.5% population growth in 2023, followed by Philadelphia's Pennsylvania suburbs at 0.3% growth. This suggests a growing preference for suburban living, driven by factors such as the cost of living, increased space, public safety, and the evolving work-from-home landscape.

Specific suburban counties showed particularly strong growth. Montgomery County in Pennsylvania led the region in adding nearly 3,700 new residents, reflecting a 0.4% increase. New Castle County in Delaware followed closely behind, welcoming over 3,330 new residents—a solid 0.6% year-over-year growth.

As a growing number of residents are opting for suburban life over urban living, the suburbs will continue to appeal to businesses, developers, and investors. This trend has already played out, as the suburbs have already seen stronger rent performance across all property types except offices in recent years.

Monday, April 1, 2024

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Former GSK office building in Navy Yard set for sheriff's sale to satisfy $78M foreclosure judgment

By Paul Schwedelson – Reporter, Philadelphia Business Journal
One of the Philadelphia Navy Yard's signature office properties is scheduled to be sold at a sheriff’s sale in June.

Hailed for ushering in a new era of workspaces when it was built for pharmaceutical giant GlaxoSmithKline a little more than a decade ago, the building at 5 Crescent Drive is now mired in foreclosure procedures over its owner's unpaid $85 million mortgage on the property.

The 207,779-square-foot office building will go up for public auction on the online platform Bid4Assets on June 4 to satisfy a foreclosure judgment against owner Korea Investment Management Co. Ltd., according to documents filed with the Court of Common Pleas in Philadelphia.
The building has been vacant since early 2022, when GSK downsized and relocated its offices to the FMC Tower in University City. GSK (NYSE: GSK) continues to pay rent on the Navy Yard space despite no longer occupying the building. The company's 15.5-year lease on the entirety of 5 Crescent Drive, which was custom-built for the Big Pharma firm by developer Liberty Property Trust, does not expire until September 2028.

Korea Investment Management bought the building from Liberty Property Trust for $130.5 million in May 2018, with the price of $628 per square foot setting a record for Philadelphia office sales. The company's $85 million loan on the building was originated by Goldman Sachs the same month, and the debt was subsequently converted into a commercial mortgage-backed security (CMBS) and sold to investors.

Developer hopes planned 150,000-SF Northeast Philadelphia warehouse hits ‘sweet spot’

By Paul Schwedelson – Reporter, Philadelphia Business Journal

Crow Holdings Development has bought a 14.4-acre Northeast Philadelphia site for $8 million with plans to develop a 150,000-square-foot industrial building.

The Dallas real estate investment firm bought the site at 14515 McNulty Road from Philadelphia Authority for Industrial Development, a subsidiary of the quasi-public Philadelphia Industrial Development Corp.

Since most new industrial warehouses tend to be 300,000 square feet or larger, Crow Holdings Development Senior Managing Director Clark Machemer said he sees opportunity in a building with a smaller footprint at the site.

“You’re going to start to see some larger projects being delivered and soon to be delivered, which gets back to our thesis of the building size,” Machemer said. “We really find it attractive and feel like it’s a sweet spot in the market.”

While the building is being built speculatively without a tenant, Machemer said Crow Holdings has already had preliminary conversations with prospective tenants. That’s ahead of schedule since typically those conversations wouldn’t happen until walls of the building are constructed.

Crow Holdings came up with 150,000 square feet since it’s the largest size that could fit on the site, but Machemer believes the early tenant interest reflects how desirable a new building of this size could be.

In the fourth quarter of 2023, the vacancy rate of industrial properties in the Philadelphia market rose to 7.7%, according to brokerage firm CBRE. After staying below 4% from late 2020 through 2022, the vacancy rate of industrial properties has been rising as new buildings are completed and supply increases.

“When you go ahead and make that investment, you’re making a bet,” Machemer said. “We liked the bet of a building of that size.”

The building is being designed to fit two tenants if needed but Machemer said it’s more likely that one tenant would lease the entire building.

Including the $8 million land cost, Machemer estimated the project will cost between $35 million and $40 million. Site work began last week and the development is expected to take around a year to complete with a planned spring 2025 delivery date.

“The capital markets have been in disarray for the last 18 months. They’re starting to stabilize,” Machemer said. “A building of this size is attractive to lenders out in the market. Some of it was luck that when we went to capitalize the project, it was of the right size given the check is a little smaller than if you were doing a half-a-million or a million-square-foot building.”

The site sits south of I-276 between I-95 and Route 1 near the border between Philadelphia and Bensalem. The proximity to I-95 and nearby highways that access the Northeast corridor attracted Crow Holdings, Machemer said. The property is also in a business park, another perk, Machemer said, since trucks don’t need to drive through residential neighborhoods.

Nearby, New York-based Rockefeller Group and Los Angeles-based PCCP partnered to buy the 50-acre former Byberry State Hospital site at 15000 Roosevelt Blvd. for $44.8 million from Philadelphia Authority for Industrial Development in December. The joint venture plans to build two warehouses totaling 656,904 square feet.

Full story:

BioTechnique Expands Manufacturing Operations in Central Pennsylvania

By Sam Bixler, Costar 

BioTechnique, a contract manufacturing organization that provides sterile injectable products and packaging services for liquid and lyophilized, or freeze-dried vaccines and medications. signed a lease to occupy a warehouse in the Orchard Business Park in York, Pennsylvania, owned by locally based Kinsley Properties.

The pharmaceutical manufacturing firm will occupy the entire 111,367-square-foot facility at 625 Willow Springs Lane situated just off I-83 north of York. The firm is currently located at 250 Cross Farm Lane in the Greenspring Industrial Park.

Thursday, March 28, 2024

Philadelphia’s Suburban Office Struggles Pre-Date the Pandemic

By Brenda Nguyen Costar Research
Philadelphia's office market has in some ways become a tale of two cities, highlighting challenges that preceded the pandemic and those that followed.

The Philadelphia suburbs have grappled with high office availability rates for over a decade, well above the historical regional average. For them, a large amount of available office space is standard operating procedure.

However, the large amount of available office space comes as a shock to Philadelphia’s central business district. Center City, which had previously maintained the region's lowest availability rate, now leads the Philadelphia region in office availability with an 18.1% availability rate, translating to 12.1 million square feet of office space for lease. Meanwhile, the suburbs, which encompass a significantly larger geography—recorded a 16.6% availability rate, which translates to 23.2 million square feet on the market.

Signs of softening demand in the office market first surfaced over a decade ago. Philadelphia’s lowest recorded availability rate of 10.8% occurred in 2007, the year before the Great Financial Crisis. Since then, Philadelphia’s office availability has never dropped below that marker.

The office surplus has been evident in Philadelphia's historically high office availability rates. Over the past two decades, the availability rate for office space has consistently exceeded those of multifamily, industrial, and even retail properties.

Philadelphia’s structural office issue is rooted in the 1980s, a record year of office development locally and nationally. As of 2024, 1980s buildings comprise 22% of existing office space, while offices built between 1960 and 2009 comprise 65%.

The area's aging office inventory presents a challenge. Without modernization efforts, a growing number of buildings risk obsolescence. Furthermore, financing hurdles, structural limitations, and investor risk aversion hinder large-scale renovations or repurposing efforts in 2024, leaving the office market in flux.

Looking ahead, both Center City and the suburbs face a wave of expiring office leases. Over 2.3 million square feet in Center City and 5.3 million square feet in the Pennsylvania suburbs are slated to expire over the next two years. With office tenants downsizing by an average of between 20% and 35%, the Philadelphia region’s office availability is projected to continue to climb, adding to mounting pressures on the office sector.

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Wednesday, March 27, 2024

Lease by JAS Worldwide Solidifies Central Pennsylvania as a Growing Hub for Logistics and Distribution

By Linda Moss CoStar News

Atlanta-based JAS Worldwide last year signed a big industrial lease in the central Pennsylvania region, helping to solidify the area's position as a growing hub for logistics facilities and distribution centers.

JAS, a global freight and logistics service provider, occupies 349,242 square feet at the First Logistics Center @ 283 at 2701 Market St., a nearly 700,000-square-foot facility owned by Chicago-based First Industrial Realty Trust in Elizabethtown. Because the large lease demonstrates JAS's substantial commitment to the region, a panel of local industry professionals selected the transaction as the winner of the 2024 CoStar Impact Award for lease of the year for Philadelphia.

As a leading global freight and logistics company, JAS is expected to create many job opportunities for Elizabethtown and the surrounding area, since it requires a substantial workforce for its operations. And the addition of a company like JAS is expected to attract other businesses and investors to the region, driving economic growth and diversifying employment opportunities. There is also expected to be a halo effect from JAS's presence, which is anticipated to spur the creation of small businesses in logistics and supply-chain operations, as well as complementary retail and services to support the larger workforce.

About the Project: First Logistics Center @ 283 was developed and is owned by First Industrial Realty Trust. JAS, due to its dedication to reducing greenhouse emissions and promoting green initiatives, was drawn to the new property as it aligned with its corporate goals and those of its clients. The tenant broker, Landmark Commercial Realty, in a press release valued the lease at $40 million over its 10-year term.

The JAS lease affirms central Pennsylvania's position as a growing market for relocation and development. The company's new location is seven miles from Harrisburg International Airport and just east of the Susquehanna River, in close proximity to Interstates 76, 83 and 81, along with airfreight capabilities. Harrisburg has received national attention for making the "Best Place to Live" list in U.S. News & World Report.

What the Judges Said: "This industrial warehouse is impactful in the immediate community of Elizabethtown, creating employment as well as providing other economic opportunities and traffic for other businesses," said Kenneth Penn, president of Benchmark Construction Group. "A natural growth in this community as a result of this industrial space will eventually support housing and rental units. This will contribute to this town and this region in their long term sustainability."