Thursday, April 25, 2024
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: https://tinyurl.com/yuvcpptt
Tuesday, April 23, 2024
Monday, April 22, 2024
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: https://tinyurl.com/3vzj8d6j
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.
Wednesday, April 17, 2024
Tuesday, April 16, 2024
Philadelphia’s Multifamily Development Boom Starts To Cool
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.
Monday, April 15, 2024
Thursday, April 11, 2024
Philadelphia’s Urban-to-Suburban Migration Hits a Three-Year Streak
Wednesday, April 10, 2024
Tuesday, April 9, 2024
Monday, April 8, 2024
Monday, April 1, 2024
Former GSK office building in Navy Yard set for sheriff's sale to satisfy $78M foreclosure judgment
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: https://tinyurl.com/f6t49yba
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
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."
Tuesday, March 26, 2024
Friday, March 22, 2024
Wednesday, March 20, 2024
Law firm office-leasing activity hit a milestone in 2023. It could fuel a domino effect.
By Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals
The legal industry leased more office space last year than it has since the Covid-19 pandemic.
In 2023, U.S. law firms leased a collective 16.9 million square feet. That's not only more office space leased by the sector since the Covid-19 pandemic, but exceeds the amount leased nationally by law firms in 2017, 2018 and 2019.
The legal industry has bucked the broader trend of office-market leasing since the pandemic upended norms around office-space usage. While law firms, like other industries, have taken a hard look at their office real estate, they on the whole are using the office more regularly than other industries. Therefore, they've occupied a more robust segment of the leasing market while other industries have slowed their deal activity, put spaces on the sublease market or exited big chunks of space.
For those in commercial real estate who work with law firms on their office-space needs or otherwise track the industry, the legal sector's recent leasing activity is indicative of its new normal.
Many law firms that saw their leases expire in 2020 or 2021 inked a short-term extension because of the uncertainty during the height of the pandemic. But in the past two years, law firms have gone back to the office more frequently and overall feel more confident making longer-term decisions about their space.
The biggest relocation signed by a law firm since the pandemic, according to Savills plc, was Paul, Weiss, Rifkind, Wharton & Garrison LLP's deal inked late last year. The international law firm agreed to take 765,931 square feet at 1345 Avenue of the Americas in Manhattan. Not only was it the largest law office relocation since the pandemic, it was also the largest office lease signed across all industries and the U.S. last year.
What law firm leasing activity says about U.S. office market
Although it's only one sector — and legal tenants only made up 8.8% of the national leasing market in 2023, according to Savills — how this industry is making office-space decisions is somewhat indicative of broader trends affecting the U.S. office market.
For example, like many professional-services tenants, law firms are largely seeking to be in the top 10% of office buildings in the markets they're in. Many law firms that have made leasing decisions in the past couple of years have departed office buildings that, while not necessarily Class B or C space, are no longer considered the top-tier towers in town.
"It's almost an office market within an office market. You’ve got this really premium level of office buildings that tenants are competing (for) ... (There's) a lot more tightness and competition for space in those premium assets that you might not necessarily see in a dated Class A building, and definitely not a Class B or C building."
Notably, a growing share of legal-industry tenants have decided to renew their leases in their current buildings rather than relocate, which may be indicative of the shrinking amount of top-tier office space available in a given market. That's especially true of office tenants that require 100,000 square feet or more.
Data found, in 2023, 56% of leases signed within the legal sector were stay in place, compared to 33.9% in 2022.
But when a law firm departs a somewhat dated Class A building for a brand-new office tower, they leave behind what's generally considered an attractive office option for other companies, law firms included, to backfill, McWilliams said.
"It creates a domino effect in backfilling office space into the nicer buildings," he said, adding lesser desirable space subsequently ends up becoming unoccupied.
Tom Fulcher, chair of the legal practice group at Savills, echoed that sentiment, saying moves by the legal industry tend to benefit the upper echelon of office space in a given market, ripple effects that ultimately create more vacancy in Class B and C buildings.
And as office space at the high end of the office market is leased, and buildout construction costs are growing, a greater number of legal tenants are considering higher-quality sublease space on the market, experts say.
Full story: https://tinyurl.com/3cpnrfnh
Tuesday, March 19, 2024
Monday, March 18, 2024
Friday, March 15, 2024
Apartment Rent Growth in Pennsylvania Exceeds National Average
Thursday, March 14, 2024
Netflix plans two-story Netflix House at King of Prussia Mall with themed experiences and dining
By Emma Dooling – Reporter, Philadelphia Business Journal
Netflix is targeting Philadelphia for one of the first locations of its new retail, dining and live entertainment experience.
The streaming giant plans to open a Netflix House in the former Lord & Taylor space at the King of Prussia Mall. The brick-and-mortar concept aims to immerse customers in their favorite Netflix shows and movies through themed merchandise, food and activities.
Netflix has previously created several temporary activations around the world based on its content, including the "Stranger Things Experience" and "The Queen's Ball: A Bridgerton Experience," as well as a pop-up restaurant called Netflix Bites. Netflix House gives the streaming service a permanent venue to host its themed experiences.
"This isn't a place that folks are going to travel to once a year," Brent Nikolin, senior program manager for Netflix's live experience team, told members of the Upper Merion Township Planning Commission during a presentation Wednesday night. "We want to be in the communities. We want to be in city centers. We want to be in great malls like King of Prussia where people come over and over again."
Nikolin said Netflix expects to open the venue in late 2025. Bloomberg reported in October that Netflix plans to open its first two Netflix House locations that year.
Netflix is seeking approval from the Upper Merion Township Board of Supervisors for conditional use of the former department store as a performing arts facility and movie theater to host the proposed activations within Netflix House. The Planning Commission unanimously recommended the application for approval during the Wednesday meeting. The entertainment company will go before the Board of Supervisors for final approval on April 11.
Full story: https://tinyurl.com/yck46dne
Assessed value of Philadelphia office buildings to plummet by $1 billion, city officials project
By Paul Schwedelson – Reporter, Philadelphia Business Journal
Philadelphia officials expect the total assessed value of office buildings across the city to drop by an estimated $1 billion as property owners battle financial woes and vacancy rates continue to rise.
Finance Director Rob Dubow said the sinking valuations had to be factored into Mayor Cherelle Parker's $6.29 billion proposed budget for fiscal year 2025, released Thursday, and the city’s five-year plan, as the plummeting value of office buildings means fewer property tax dollars flowing into city coffers.
While Philadelphia does not lean on property tax revenue as heavily as some other big cities across the country, Dubow admitted the significant reduction of assessed values across the office market is "a big concern."
“We are different from a lot of governments in that we’re really dependent on wage tax rather than property tax,” he said. “The office sector is a small percentage of our property tax. So it’s a concern, it’s something that we’re building into our plan. It will be a hit to revenue.”
Dubow attributed the projected $1 billion decline to a flurry of assessment appeals. As office property owners witness the sinking value of their buildings, they’re petitioning the city to adjust their assessments accordingly. The vacancy rate for Philadelphia office buildings is creeping toward 25%, and reduced leasing revenue and rising interest rates over the past two years have squeezed property owners with floating-rate loans.
In January, Centre Square owners Nightingale Properties and Wafra Capital Partners negotiated a decrease in the assessment of the two-building office complex for both the 2023 and 2024 tax years. The 1500 Market St. property has been in receivership for almost a year after its owners failed to pay off a $368 million commercial mortgage-backed security (CMBS) loan on the property before its maturity date, according to CMBS reports.
he city's Board of Revision of Taxes approved a 31% reduction in Centre Square's property tax assessment, previously set at $362.6 million, to $250 million for 2024 and dropped the 2023 assessment 24% to $275 million.
Based on Philadelphia’s property tax rate, Centre Square's owners are now responsible for paying about $3.85 million in property taxes for 2023 and $3.5 million for 2024. That’s a reduction from $5.1 million in taxes that would have been owed in each of the two years had the assessment remained the same, giving Nightingale and Wafra a combined savings of more than $2.8 million.
The uncertainty surrounding the future of office space has led to a lack of office building sales in the last few years. In turn, accurate assessments have become more difficult to achieve, industry experts say, because there’s little sales data to set current market prices.
A few recent and potential sales could soon provide some clarity.
A four-building Old City office portfolio was recently handed over to a lender, which is now in talks to sell at least two of the buildings. On the other side of City Hall, a 15-story office building at 1760 Market St. was recently listed for sale and positioned as a potential conversion to residential.
Last fall, Alterra Property Group bought a nearby 18-story office building at 1701 Market St. for $26.25 million and is now converting it into 299 apartments. Less than a year prior to the sale, the building was under contract to sell for nearly double that price.
In recent weeks, Parker has made a public push to encourage businesses to bring workers back to offices. While the long-term effects are still playing out, increasing the occupancy of office buildings would help both property owners and the city.
Full story: https://tinyurl.com/sxx4ju3t
Tuesday, March 12, 2024
Monday, March 11, 2024
Amazon Pays $650 Million for Nuclear-Powered Data Center in Pennsylvania
By Mark Heschmeyer CoStar News
Amazon Web Services bought a northeast Pennsylvania data center site in the shadow of a nuclear power plant, a source of carbon-free energy for the digital hub to help the tech giant meet its emission goals.
The deal comes as data center demand surges, driven by the rapid growth of artificial intelligence, and pushes developers into new markets.
AWS paid $650 million for the 1,200-acre property, making it the largest individual U.S. commercial sale of the year. The cloud computing business of Seattle-based e-commerce giant Amazon is one of the world's largest providers of those services with more than 100 data centers in over 20 countries.
Houston-based Talen Energy sold the site as-is with one data center on the property. AWS expects to expand the campus to up to 960 megawatts of data center capacity, or the equivalent of the energy consumption of nearly 900,000 houses. Data centers are measured in their power-handling ability as opposed to square footage.
Amazon has set a goal to reach net-zero carbon emissions by 2040 — 10 years ahead of the Paris Agreement deadline, a legally binding international accord on climate change.
“We’re on a path to power our operations with 100% renewable energy by 2025 — five years ahead of our original 2030 target,” Erika Reynoso, an Amazon spokesperson, said in an email to CoStar News. “To supplement our wind and solar energy projects, which depend on weather conditions to generate energy, we’re also exploring new innovations and technologies, and investing in other sources of clean, carbon-free energy. This agreement with Talen Energy for carbon-free energy is one project in that effort.”
Data centers are attracting a broad swath of investors across the globe. Blackstone acquired data center developer and owner QTS Data Centers in 2021 for $10 billion and, just last year, QTS signed at least $8.5 billion of development deals preleased to major technology companies that need more AI capabilities.
The sites generate significant heat and humidity that must be mitigated to keep equipment functioning and prevent fire hazards and other safety issues. While cost-effective, cooling data centers takes a significant amount of water. The average data center uses 1 million to 5 million gallons of water per day, equivalent to the daily water use of a town with a population of 10,000 to 50,000 residents, according to a study this month by Frederick County, Maryland.
National Office Attendance Rises With Slow but Steady Gains
More In-Person Mandates Help Boost Daily Foot Traffic, but Numbers Still Short of Pre-Pandemic Days
It hasn't been quick or easy to get office attendance rates closer to what they were prior to the pandemic, but workplace foot traffic is on a slow but steady climb.
As more companies add stricter in-person mandates and adjust to longer-term flexible work policies, attendance rates for days in the middle of the week have jumped 27% from 2022, data firm Placer.ai's National Office Index shows. The data analyzed foot traffic among roughly 1,000 commercial office buildings in the United States, excluding buildings that are both residential and commercial.
While foot traffic on Mondays and Fridays — popular work-from-home days — is down as much as 49% from the years leading up to the pandemic, several elements in the return-to-office shift are proving to be a benefit for a property type struggling with record-high vacancy rates.
For starters, companies in industries including finance, insurance and real estate are propelling attendance rates in cities with larger shares of those types of employers because they tend to require more in-person workdays. New York, Dallas and Miami, cities with a high concentration of workers in those fields, have led the national office recovery push as attendance rates have come close to nearly 80% of their pre-pandemic levels, according to the Placer.ai data.
Friday, March 8, 2024
Wednesday, March 6, 2024
Majority of Industrial Space Under Construction in New Jersey Is Not Pre-Leased
By Mateusz Wnek CoStar Analytics
Industrial developers and property owners are bracing for a challenging leasing environment later this year and into 2025 owing to the amount of new industrial space set to be completed this year and what appears to be a shift in tenant preferences since many of the largest projects first broke ground.
Currently, there are 18.2 million square feet of industrial space under construction in New Jersey, with 90% still available for lease. This year's influx of new supply is widely expected to weigh on the Garden State’s fundamentals, particularly in Northern New Jersey.
The metropolitan area is already reeling from an abnormally weak year for industrial space demand. Last year, net absorption, or the change in occupied space, posted the first annual negative reading since 2012. CoStar expects a second consecutive negative print in 2024, pushing the average industrial vacancy rate for the region roughly 100 basis points higher to 5.1%.
Tuesday, March 5, 2024
Monday, March 4, 2024
Retail Is Only Property Type in Philadelphia To See Vacancy Shrink
By Brenda Nguyen Costar
The Philadelphia commercial real estate market has undergone divergent trends across its major property sectors—retail, industrial, multifamily and office—between the first quarters of 2020 and 2024. While retail defied expectations and experienced steady demand and declining vacancy, the industrial and multifamily property sectors faced interim supply challenges due to the recent development boom.
The retail property sector surprised many by showing resilience amid the pandemic, witnessing a decline in vacancy rate since early 2020. Robust consumer spending fueled by stimulus checks and growing wages, alongside limited new retail construction, had driven strong demand for store space among retailers. Low-interest rates and easy access to capital further facilitated retail business expansions, bolstering absorption performance across the Philadelphia region.
As a result, Philadelphia’s retail vacancy has declined by 0.4% to 4.2% in the first quarter of 2024, the lowest level since CoStar began tracking data in 2006.
The industrial sector also experienced substantial demand but has encountered a distinct short-term challenge. Developers swarmed into the sector, building more than 46 million square feet of new inventory in just four years, an unprecedented pace. The recent construction boom surpassed even healthy demand, which totaled over 36 million square feet during the same period. Consequently, Philadelphia's industrial vacancy rate increased by 1.4% to 6.9% in the first quarter of 2024 as new supply flooded the market.
Similar supply trends played out in the multifamily sector. While developers produced over 35,600 new apartments in the past four years, the absorption, or net change in occupied units, of 29,000 units could only partially keep up, resulting in a 1.2% vacancy increase from the first quarter of 2020 to 7% in 2024.
Meanwhile, the office sector experienced the most significant vacancy run-up during this period largely the result of deteriorating demand rather than new construction. While nearly 1.8 million square feet of new office space was still built over the past four years, over 8.7 million square feet of existing office space was returned to the market, leading Philadelphia's office vacancy rate to climb by 3.2%—the highest among all the property types in the region.
Unlike the short-term, supply-driven challenges of industrial and multifamily in early 2024, the office sector's challenges are longer-term and demand-driven.
These divergent performances across the Philadelphia commercial market suggest that each sector is navigating its own unique set of opportunities and challenges in the post-pandemic era.
Here's where office space inventory is actually shrinking — and what's driving the trend
By Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals
Office inventory is holding steady or shrinking in select cities across the country, due in part to an increase in conversion projects and a slowdown in new construction.
That's according to a recent analysis found office inventory shrank in seven metro areas tracked by the commercial real estate firm. Those markets are Washington, D.C., as well as the adjacent northern Virginia and suburban Maryland markets; New York; Phoenix; Orange County, California; and Baltimore, which saw its inventory shrink the most, by 3.2%.
The analysis examined office inventory between the fourth quarter of 2022 and the final three-month period of 2023.
Notably, though, more metro areas examined by Savills posted gains in office inventory, led by Salt Lake City and Austin, Texas, which posted 4% and 3.7% gains in office space, respectively, on a yearly basis. The Dallas-Fort Worth metro area and Seattle-Puget Sound followed, at 3.6% and 2.8%, respectively.
San Diego and Philadelphia saw their inventory remain unchanged year over year.
United States has been oversupplied on office space since even before the Covid-19 pandemic. Most markets seeing their inventory grow have projects that broke ground two or three years ago that delivered in 2023.
"Now there are redevelopment pressures in these markets to finally deal with some of the office stock that has long-term office vacancy."
The conversion of office space into a new uses — primarily residential — has become a hot topic of discussion as reduced office-use patterns become permanent, office buildings with high vacancy see their values decline, and massive loans those properties back reach maturity. Developers in some metro areas, including D.C., have completed conversions successfully for a long time and also have an abundant supply of buildings considered ideal for such conversions. Other cities that have seen little to no conversions historically are starting to develop policies and incentives around conversions.
Despite that uptick in conversion activity shrinking office inventory in a few places, most of the office markets analyzed by Savills are still considered oversupplied. The firm examined average square feet per office-using worker and average utilization levels nationally, determining 151 square feet per employee to be a national baseline.
Based on that, only three markets — Nashville, Tennessee; south Florida and Tampa-St. Petersburg, Florida — were considered undersupplied at the end of 2023. Boston, New York, and Raleigh-Durham, North Carolina, ranked as the most oversupplied.
Sublease space dips for first time in two years
For the first time since the fourth quarter of 2021, sublease inventory shrank nationally at the end of 2023.
It went from 176.4 million square feet in Q3 2023 among markets tracked by the firm to 173.7 million square feet in Q4. Still, compared to 127.5 million square feet of sublease space on the market in Q4 2020, that market overall has continued to grow since the pandemic.
It was surprising to see sublease space decrease nationally at the end of 2023 but, he added, there were some high-profile subleases around the country in which the lease term expired, which meant that space turned into direct vacancy.
Full story: https://tinyurl.com/err2hcuw
Thursday, February 29, 2024
Wednesday, February 28, 2024
Philadelphia’s Industrial Development Shifts Gears in 2024
Tuesday, February 27, 2024
Victory Brewing Co. completes a Sale Lease Back Chester County facility for $21.79M
By Emma Dooling – Reporter, Philadelphia Business Journal
Victory Brewing Co. has sold one of its Chester County properties, and will use the money to fund upgrades at its other locations.
The Downingtown craft brewer sold its 212,000-square-foot Parkesburg brewery and taproom for $21.79 million in late January to New York asset manager Fortress Investment Group LLC, according to property records. The transaction was a sale-leaseback and will not impact the facility's operations, John Struble, CFO for Artisanal Brewing Ventures, the parent company of Victory Brewing, told the Business Journal.
"The commercial property market is active, and this was a pure financial transaction for us," Struble said in a statement.
Victory Brewing acquired the 42-acre property for $10.75 million in 2016, several years after its operations at the site began. The facility started bottling and brewing in 2013, and a 10,000-square-foot taproom was added to its offerings in 2015.
The brewery now has a 25-year lease on the facility, located at 3127 Lower Valley Road, with multiple options to extend it up to 40 years.
Artisanal Brewing Ventures plans to reinvest the money it received from the transaction into marketing efforts and facility upgrades at some of its locations. Struble said a "significant portion" of the funds allocated for facility renovations will go toward updates at the Parkesburg brewery and taproom but did not disclose what the project will entail.
In addition to the Parkesburg facility, Victory Brewing also operates a brewery and taproom in Downingtown and taprooms in Kennett Square; Philadelphia; and Charlotte, North Carolina; The Philadelphia location, the brewer's newest taproom, opened in October 2021 at 1776 Benjamin Franklin Parkway in Center City.
Full story: http://tinyurl.com/4xum288j
Monday, February 26, 2024
Toll Brothers nets $180M in cash from unexpected sale it 'couldn't refuse'
By Dan Brendel and Michael Potter – Philadelphia Business Journal
Toll Brothers Inc. began February with an unexpected windfall, netting more than $180 million from the sale of vacant land it once tabbed for an expansive residential development.
The Fort Washington-based homebuilder announced the sale Tuesday in conjunction with its earnings report for the fiscal first quarter ended Jan. 31. Toll Brothers CEO Douglas Yearley Jr., speaking to investors on the company's earnings call Wednesday, called the all-cash deal a "one-off."
"We had a unique piece of property in Virginia that we were processing for approvals to build homes on and a data center operator came along and made us an offer that we couldn't refuse," Yearley said.
JK Land Holdings, a major Virginia data center investor led by CEO Chuck Kuhn, bought the 108-acre lot at 19508 Freedom Trail Road in Ashburn. Toll Brothers previously planned to build some 1,300 apartments and townhouses at the site, located about 35 miles west of Washington, D.C., in affluent Loudoun County.
Yearley did not identify JK Land Holdings as the buyer when discussing the deal on Wednesday's call. The sale took place in Toll's second quarter, which began Feb. 1, according to the company.
Toll Brothers said it expects a pre-tax land sale gain of about $175 million in the second quarter as a result of the sale, and Yearley told investors the proceeds will be used to increase its budget for share repurchases from $400 million to $500 million in fiscal 2024.
Full story: http://tinyurl.com/ys3dae63
Friday, February 23, 2024
Over $1 Billion of Philadelphia Office Properties Traded in 2023 Amid Shaky Market Conditions
Thursday, February 22, 2024
Wednesday, February 21, 2024
Done Deals: Sansone pays $20M for Tac-Pal project site; Yellow Corp. sells Montco property out of bankruptcy
By Paul Schwedelson – Reporter, Philadelphia Business Journal
Here’s a roundup of recent real estate news and transactions in the Philadelphia area.
$20 million
Palmyra Urban Redevelopment Entity sold 60 acres off Route 73 just over the Tacony-Palmyra Bridge for $20 million to an entity affiliated with St. Louis-based Sansone Group, which is developing Phase 2 of the Tac-Pal Logistics Center at the New Jersey site.
The first phase of the project, developed in partnership with Dallas-based Crow Holdings Capital, was completed with a 702,450-square-foot industrial building. YesWay Logistics leased 252,000 square feet of that building, leaving about 450,000 square feet remaining. The second phase will see construction of a 704,182-square-foot industrial building, which is expected to be completed by the end of 2024.
$7.7 million
PECO paid $7.7 million for a 7-acre property with a vacant 13,700-square-foot office and truck servicing building at 480 S. Gravers Road in Plymouth Meeting. Proudfoot Investments was the seller.
$3.2 million
Transportation logistics company Realterm bought a 7.4-acre industrial truck terminal with 71 doors from Yellow Corp. for $3.2 million, according to Montgomery County property records. The property is at 750 County Line Road in Colmar.
Nashville, Tennessee-based Yellow sold the property out of bankruptcy. Yellow previously sold a 13.3-acre truck terminal in Bensalem to XPO Inc. for $36.2 million.
$2.5 million
Bala Cynwyd-based Velocity Venture Partners paid $2.5 million for a 47,800-square-foot industrial property at 1310 Stanbridge St. in Norristown. Velocity bought the property from Weber Real Estate Holdings. The building is fully leased by Norfab, which manufactures heat-resistant materials for firefighters.
The building is attached to a 127,000-square-foot industrial building at 1210 Stanbridge St. that Velocity bought for $4 million in 2019 when it was mostly vacant. Since then, Velocity has leased the entire building. VonC Brewing, HVAC supplier Cianci and Daimion, and Sweet Prosperity Bakery are among the tenants.
$1.475 million
An entity affiliated with Barnegat, New Jersey-based Walters Group bought an undeveloped 4.1-acre site at 1500 Pennbrook Parkway in Upper Gwynedd for $1.475 million. Walters Group plans to build 60 apartments across multiple buildings on the property.
38,000 square feet
Buccini/Pollin Group expanded coworking space in downtown Wilmington named The Mill by 38,000 square feet, bringing the space to a total of 104,700 square feet.
The coworking space is at Market West, formerly known as the Nemours building, at 221 W. 10th St. The expansion to the third floor of the building includes an additional 30 furnished offices, outdoor terraces, a podcasting suite and recreational activities like foosball and cornhole.
The 14-story, 800,000-square-foot Market West building is undergoing a $100 million renovation that will eventually feature 355 apartments while reducing the building’s office footprint from 450,000 square feet to 150,000 square feet.
Full story: http://tinyurl.com/msde4uuz
