Tuesday, January 30, 2024

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Sublet Share of Office Availability Doubles in Philadelphia Over Past Five Years

By Brenda Nguyen Costar

Of the 51 million square feet of office space listed as available in the Philadelphia market, 8.2 million square feet, or 16%, is sublet space—nearly double the amount seen in early 2019.

Nearly 280 office buildings in the Philadelphia metropolitan area have sublet availability, spanning from a mere 120 square feet to an entire 340,000-square-foot office building.

More than 35% of the total sublet availability at 3 million square feet is located within Philadelphia’s city limits. Of this, Center City is responsible for 75% of the city’s total sublet availability. If the office-heavy locations of University City and the Navy Yard are included, they collectively comprise 90% of the city’s sublet availability.

The situation is not much better in the other Philadelphia suburbs, which includes Southern New Jersey and Northern Delaware, where 5.2 million square feet of sublet office space is on the market—almost double that of the total in the city of Philadelphia.

While the suburbs encompass a significantly larger geography, sublet spaces are notably concentrated in just a few locales. Namely, Delaware County ranks as having the most sublet space with 550,000 square feet, followed by Horsham, Pennsylvania; with 402,000 square feet, King of Prussia, Pennsylvania; with 400,000 square feet and Blue Bell, Pennsylvania; with 400,000 square feet.

The largest single block of office sublet space on the market is State Farm’s former regional headquarters in Concordville, in Delaware County. The 340,000-square-foot building, constructed in 1980, has lingered on the market for more than three years after State Farm adopted a flexible work policy. This building is a standard example of dated, suburban properties that are struggling to backfill space in a post-pandemic era.

Within city limits, among the largest available sublet spaces is 8800 Tinicum Blvd. in Philadelphia’s Southwest neighborhood, which became available following PNC Bank’s consolidation of its Philadelphia operations. The 225,000-square-foot space has also sat on the market for over three years. Located within the Philadelphia International Airport complex, the office is isolated from walkable neighborhoods and diverse lunch and retail options. The existing lease expires at the end of 2024, at which point, a direct lease will become available and the property is anticipated to be characterized as a distress property.

Despite the recent increase in the amount of sublet space relisted on the market, Philadelphia’s total office availability rate of 15.4% in the first quarter of 2024 remains among the lowest of the 15 largest U.S. office markets, trailing only Minneapolis, which has a 14.6% availability. Meanwhile, San Francisco tops the nation with a 25.9% availability rate.


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Friday, January 26, 2024

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XPO buys Yellow Corp.'s former Bucks County property $36 million

 By Paul Schwedelson – Reporter, Philadelphia Business Journal

XPO Inc. purchased a 13.3-acre Bensalem truck terminal from Yellow Corp. for $36.2 million, according to Bucks County tax records, part of a 26-property acquisition by the logistics company.

The property is at 2627 State Road along the Delaware River and near I-95. Nashville, Tennessee-based Yellow sold the property out of bankruptcy. The freight company filed for Chapter 11 bankruptcy protection after shutting down all operations last summer.

Connecticut-based XPO (NYSE: XPO) bought the 26 Yellow-owned properties and two leased properties for $870 million, according to court documents.

“This acquisition of real estate is a once-in-a-generation opportunity to increase capacity in critical, growing freight markets, create more jobs and serve our customers even more effectively,” XPO CEO Mario Harik said in December.

Full story: http://tinyurl.com/y8p5vn6x


Thursday, January 25, 2024

Food Distributor Renews Lease, Expands Space in Central New Jersey

 By Linda Moss CoStar News

A food supplier and distributor has renewed its lease and expanded its space at an industrial property in central New Jersey.

Performance Food Group, based in Richmond, Virginia, will be leasing 300,618 square feet at 1109 Commerce Blvd. in Swedesboro. The occupied space was originally 159,627 square feet, and a new 140,991-square-foot addition has been constructed, according to Colliers, a broker on the deal. About 25% of the building is dedicated to cold-storage space.

Performance Food, which delivers more than 300,000 food-and-related products to customers across North America, has more than 150 distribution centers across the United States. The Commerce Boulevard site services Peformance Foods' mid-Atlantic operations for Vistar, a line focused on stocking snack, candy and beverage items in business and community locations.

This Swedesboro property is part of the Logisticenter at Logan, a Class A master-planned business park mostly developed by Dermody Properties in Logan Township. The building is managed by DWS, who is ranked among the world’s largest real estate managers.

The location and park are positioned along the Northeast corridor, immediately accessible to Interstate 295 and minutes from the New Jersey Turnpike and to the Commodore Barry Bridge.


Startups slashed office space during the pandemic. That spending isn't coming back.

 By Andy Medici – Senior Reporter, The Playbook, The Business Journals

Startups dialed back their spending on office space during the pandemic, and they're likely to continue to spend less for real estate in the years to come.

That's according to research from accounting and finance firm Kruze Consulting, which found that about 65% of startups paid rent before the pandemic, but that figure dropped to below 40% in 2021. The percentage has since rebounded to a bit under 60%, but the amount being spent on rent as a portion of a company's overall expenses has fallen from between 7% and 7.5% before the pandemic to about 2.5% now.

The data draws from more than 800 startups served by Kruze. It also shows how quickly and thoroughly startups cut down on office space during the remote-work boom of the pandemic.

“It appears that this is the new normal," said Healy Jones, Kruze vice president. “The percent of startups that are going to pay for an office is down. I don’t see anything changing that unless there is some dramatic change.”

Jones said the rise of remote work played out well for many startups, as startups tend to be more flexible with remote arrangements than larger, more-established companies. The reported numbers also reflect how the office rents are lower in many cases than before the pandemic, meaning the expenses take up less of a company's overall budget.

Rents have begun to creep back up in the last few months, but Jones said there's a larger issue to watch: Startups are going under, and while they might try to reduce expenses to stay afloat, rent is the hardest budget line to cut.

“This is like a 'dead-cat bounce',” Jones said. “This is a warning call for landlords that there is going to be a lot of bankruptcies in the startup worlds as companies go under.”

What startups want for office space

Startups in the future will be more judicious about office space, Jones said.

That doesn’t mean companies will abandon it altogether, as many startups need lab, manufacturing or even call-center space for their businesses — and some of those spaces are in short supply. 

But it’s far less likely startups are going to be spending precious dollars on generic office space in urban downtowns, Jones said. The open-office concept that became popular in recent years is a poor environment for a software engineer writing lines of code — and employers who can manage workers remotely likely will opt to do so going forward, in turn saving money on a lease.

Jones’ advice for business owners who are looking to lease space? Be strategic. Think about the culture you want to build, whether remote, in-person or hybrid, and what that means for your needs. Also think about where your employees live and locate your office accordingly.

“Individual employees are thinking a lot about their commute,” Jones said. “Employees aren’t against seeing each other in person. They just don’t like sitting for two hours in their car every day.”

Challenges for the U.S. office market

The Kruze Consulting data highlights a difficult position for the nation's office-market sector.

More than 800 million square feet of office space is set to expire between now and 2028, according to a recent analysis by commercial real estate data, analytics and valuation platform CRED iQ. At the same time, there is about $321 billion in commercial real estate debt set to mature in 2024 and 2025, by CRED iQ's estimation.

According to Moody's Analytics Inc., there's an estimated $47 billion in office loan debt coming due this year alone. Among commercial mortgage-backed securities loans backing office properties, Moody's estimates three-quarters of that volume will struggle to refinance this year.

Meanwhile, startup funding fell back toward its pre-pandemic levels last year, according to data from Pitchbook and the National Venture Capital Association. Startup funding fell to $170.6 billion in 2023 from $242.2 billion in 2022. That's also down from a peak of $348 billion in 2021 but above the $149.4 billion that was reported for pre-pandemic 2019.

Startups are facing a more challenging interest-rate environment than in years past, as well. The Federal Reserve kept the Federal Funds rate near 0% for a number of years prior to 2016 before slowly raising that benchmark to above 2% just before the pandemic — and then lowering it once more. Starting in 2022, the Fed once again raised the Fed Funds rate to combat high inflation and wage growth, with the rate hovering above 5%  — the highest it's been in more than 20 years.


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Tuesday, January 23, 2024

MRP Industrial and Clarion Partners Sign Full-Building Industrial Tenant in Burlington County

 By Madison Zebrowski CoStar Research

MRP Industrial, a privately held real estate company based in Baltimore, Maryland, which has built a large number of industrial facilities throughout the Northeast U.S., and an investment fund managed by Clarion Partners, secured a major tenant for their latest industrial park project at 1900 River Road, a two-building, in-fill redevelopment totaling 1,512,840 square feet.

Loctek, a China-based manufacturer of ergonomic workspace equipment such as height-adjustable desks, desk converters, monitor arms, TV wall mounts and exercise bikes, signed a full-building lease for Building 2, which measures 667,560 square feet.

The speculative project, which was completed in 2023, also includes an 845,280-square-foot cross-dock facility known as Building 1 that is available for lease.

The new industrial development occupies the site of the former GSA Eastern Distribution Center, which MRP and Clarion acquired from Stag Industrial in 2020 and subsequently redeveloped. The central East Coast location in New Jersey's Burlington County has access to the Pennsylvania and New Jersey Turnpike Connection at Exit 6A.

The project broke ground in October 2022 and the industrial park is near industrial locations for several major corporate tenants such as Burlington, Performance Team and Trane.

Loctek's lease is a major win for the Burlington County logistics market, which has undergone a recent construction boom. The county's 12.7% industrial vacancy rate and 16.9% availability rates are still among the highest in the Philadelphia region.

Nevertheless, the deal is an encouraging sign that big-box leasing could pick up in 2024, considering it’s only the first month of the year, according to Brenda Nguyen, associate director of market analytics for CoStar. Last year, Burlington saw only one major industrial lease signed for more than 500,000 square feet, when Maersk leased 913,000 square feet last June.


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Monday, January 22, 2024

Longwood Gardens completes acquisition of Granogue, a 505-acre du Pont estate

 By Emma Dooling – Reporter, Philadelphia Business Journal

Longwood Gardens has completed its acquisition of the late Irénée du Pont's Delaware estate nearly a year after announcing plans to take ownership of the 505-acre property.

The Kennett Square tourist destination finalized its purchase of Granogue on Jan. 11, a Longwood Gardens representative confirmed to the Business Journal Friday. Close of the sale was first reported by the Delaware Business Times.

Terms of the deal were not disclosed, and New Castle County property records currently list a sale price of $10.

Longwood Gardens announced in February 2023 that it had entered into an agreement with Granogue Reserve LTD LLC to acquire the estate. The Conservation Fund, an organization that protects land and waterways throughout the country, acted as the fiscal agent for the acquisition.

Granogue is located off of Smithbridge Road about seven miles from Longwood Gardens. The 100-year-old property includes farmland, forest, pastures and meadows. In total, the estate is home to 18 residences, including the main house, and four other buildings.

After the deal was announced, Longwood Gardens CEO Paul Redman told the Business Journal that the organization planned to use the property to expand its ecological conservation and research practices and would conduct thorough assessments of Granogue to determine what it could do with the estate. In a statement issued Friday, the Longwood Gardens representative did not address potential plans to open the estate to the public but said the organization continues to explore how the property will evolve under its operation and will keep conservation of the land its first priority.

"We understand the important role this iconic landscape plays in our community, and we will work to ensure it is stewarded for future generations to enjoy," the representative said.

The acquisition was funded in part by the the Longwood Foundation and the Mt. Cuba Center, a Delaware botanical garden incorporated in 1989 by Lammot du Pont Copeland. The Longwood Foundation was established by Pierre S. du Pont, Irénée du Pont's uncle, in 1937 to support the operations of the famous gardens and fund community projects, according to its website. It is currently led by Thère du Pont.

Full story: http://tinyurl.com/2s4ex3xt


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Thursday, January 18, 2024

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Dow Signs What May Be Philadelphia Market’s Largest Office Lease in More Than a Decade

 By Mark Heschmeyer CoStar News

David Werner Real Estate Investments signed an 800,000-square-foot, long-term lease extension with Dow at its life sciences and office campus in Collegeville, Pennsylvania, one of the biggest leases signed in the area in more than a decade.

It's the largest office lease signed in the Philadelphia market in the past 13 years. The deal surpasses what was previously the largest signing when David Werner and partner GreenBarn Investment Group finalized a $180 million sale-leaseback with a subsidiary of Pfizer for the same two-building campus last summer.

The extension includes the company's Northeast Dow Center at 400 Arcola Road, a significant research and development center for Dow.

The Bank of Montreal and Starwood Mortgage Capital co-funded a $95 million loan to finance the acquisition of the Arcola Corporate Campus, a 1.9 million-square-foot, Class-A mixed-use office and lab campus. The five-year loan was rolled into two commercial mortgage-backed securities offerings last year.

Dow leases a total of 927,828 square feet at the two-building campus. The global materials science company's lease was set to expire in December 2028 and has six, 6-year lease renewal options, according to CMBS documents backing the property loan. Dow subleases 20,642 square feet to Keller Williams and is marketing for sublease an additional 110,553 square feet of office space on its lease.

A representative for David Werner told CoStar News the Dow lease extension was not related to the extension options but did not provide additional information.

Wyeth Pharmaceuticals, a wholly owned subsidiary of Pfizer, leased back 677,311 square feet at 500 Arcola when the campus was sold to David Werner. Wyeth’s lease is set to expire on August 2028 with three, 1-year renewal options, according to CMBS documents.


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