Friday, February 23, 2024

Over $1 Billion of Philadelphia Office Properties Traded in 2023 Amid Shaky Market Conditions


By Brenda Nguyen

Office sales activity persisted in Philadelphia last year despite disruptive office market fluctuations, revealing resourceful developers, investors and companies capitalizing on a shifting market.

Before 2020, office buildings reigned supreme, regularly commanding top dollar among commercial real estate property types from investors.

However, the lasting effects of the pandemic disrupted that trend. As employers and employees navigate the evolving future of in-person work amid lingering economic uncertainties, the office investment landscape remains in flux.

Subsequently, the level of office investment has declined with each passing year since 2019.

Interestingly, office investment—which was the least-favored asset for Philadelphia investors in 2021-2022—accounted for 25% of the total investments across retail, multifamily and industrial property types in 2023, up from 17% in 2021. Philadelphia office sales in 2023 even surpassed the volume of multifamily sales.

Several categories have buoyed the recent office sales volume, particularly projects primed for redevelopment and stabilized office buildings with a value-added component.

In a notable example from October 2023, a joint venture between FLD Group and A&H Acquisitions acquired the Bala Plaza portfolio in one of the top deals in the fourth quarter. The five-building, 1.14 million-square-foot office campus traded for $185 million, or approximately $163 per square foot. The new owners plan to redevelop the campus, incorporating 2.1 million square feet of retail, a 168-room hotel, 750,000 square feet of office space, and 750 residential units.

Medical office buildings and sale-leasebacks have also contributed to the heightened recent office sales activity.

The investment figures reflect a quietly opportunistic mindset among a small enclave of investors and developers despite lingering uncertainties from the pandemic.

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