Monday, April 29, 2024
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.
