Prologis to ramp up warehouse purchases with global demand expected to climb

By Randyl Drummer CoStar News

Executives at the world's largest warehouse owner and developer expect to ramp up property acquisitions in coming months in a bet that industrial real estate demand will accelerate next year after a period of rising vacancies and subdued rent growth.

Prologis raised its projected spending on acquisitions to between $1.75 billion and $2.25 billion for the full year — up from its prior estimate of between $1 billion and $1.5 billion.

“Our teams are scouring the market for opportunities,” Chief Financial Officer Tim Arndt told investors during the company’s latest earnings call. "We see a very attractive market for acquisitions."

The move to buy more property comes as Prologis, based in San Francisco, posted a 6% increase in revenue in the third quarter to $2 billion from the prior-year period. The increase reflected year-over-year gains in rental revenue and leasing activity — even as the average occupancy rate across its 1.2 billion-square-foot global portfolio dipped to 95.9% from more than 97% during the same time in 2023.

"The bottoming process is [underway] as our customers navigate an uncertain environment," CEO Hamid Moghadam said in a statement. "Looking ahead, the supply picture is improving and the long-term demand drivers for our business remain strong."

The company's improving outcome comes amid signs that the surge in industrial vacancies in the United States over the past two years is nearing its peak and could start to fall next year, Adrian Ponsen, CoStar's national director for industrial market analytics, said in a recent commentary.

Ramping up for growth

Prologis has acquired over 14 million square feet of properties this year, Arndt said. The company recently paid $71 million to buy a collection of fully leased office and research properties in the San Francisco suburb of Fremont, CoStar News reported.

The company plans to snap up more properties before the end of 2024 to prepare for an expected rise in tenant demand next year amid a dwindling pipeline of new warehouses under construction.

The U.S. industrial vacancy rate ticked up slightly to 6.6% in the third quarter from 6.5% in the second quarter, the smallest quarterly increase recorded since late 2022, CoStar's Ponsen said. The slowing vacancy increase comes as a record wave of speculative warehouse development is finally winding down this year, he added.

Arndt said he doesn't expect demand to significantly pick up until around mid-2025.

“While occupancy and rents have softened against a backdrop of positive yet subdued demand, we continued to deliver impressive net effective rent [gains], which bridges us through this soft patch to the next cycle of rent growth," he said. "Customers are taking time to make decisions, but warehouse utilization is up this year, and that will be a catalyst for them" to eventually take more space.

The real estate investment trust also now expects to sell more properties than previously expected.

Prologis anticipates raising $1.25 billion to $1.75 billion from selling properties, up from its previous estimate of $1 billion to $1.4 billion. The company recently sold a pair of warehouses in the Chicago area for a combined $106.5 million in two of the area’s largest single-property sales this year.

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US industrial market vacancy rate hits 10-year high in Q3

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

The nation's industrial market continued to slow in the third quarter, building on a two-year cooling-off period after its pandemic heyday, but the market could soon hit bottom.

Preliminary data found the U.S. industrial vacancy rate hit 7.4% in Q3, a 350-basis-point increase from two years ago. It's also the highest vacancy rate within the national industrial market in a decade.

The national industrial market has undergone the steepest uptick in vacancy in the shortest period of time ever. That's largely thanks to how hot the market had become — and how very quickly — during the Covid-19 pandemic, followed by a significant cooling-off period as consumer and industrial tenants' needs changed.

Sublease availability also grew substantially within industrial in Q3, reaching a record 198.7 million square feet. That's up 45% from the same time a year ago and continues to rise, albeit at a slower pace than what's been recorded in recent quarters. Sublease space grew 8.8% in Q3 compared to an average quarterly growth rate of 20.1% last year.

"The base of the change that we’ve experienced ... has been a big shock to the system

and has had a lot of implications in terms of rents and tenant-landlord dynamics. To characterize the current situation, we’re finding the bottom of this mini-cycle. I think we are approaching that plateauing of vacancy and sublease availability, but time will tell."

It's likely more industrial groups will move forward on real estate decisions following the November election, Russo said, once they've begun to figure out what the incoming White House administration's policy goals may be.

In response to the slowing market, new construction has also plummeted, with starts in Q3 hitting their lowest level since 2016.

Full story: https://tinyurl.com/bd3pejvh

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New York real estate firm moves to seize historic Wanamaker building via foreclosure

By Paul Schwedelson – Reporter, Philadelphia Business Journal

After acquiring a majority of the debt on the historic Wanamaker building, TF Cornerstone is pushing to seize the Center City office property from owner Rubenstein Partners.

With the New York real estate firm now holding the loan, the dynamic of the Wanamaker's ongoing foreclosure case has shifted. Instead of Rubenstein's debt being held by a commercial mortgage-backed securities (CMBS) trust focused on providing a return for its investors, the loan is owned by a developer that could see more opportunity in taking possession of the building’s nine floors of office space.

TF Cornerstone already owns the Wanamaker's 435,000-square-foot retail space that houses Macy’s, paying $40 million for the three-floor department store in 2019. The remaining 954,363 square feet in the 114-year-old building — office space on floors 4 to 12 and the 660-space underground parking garage — is owned by Rubenstein and backs the Philadelphia firm's $124 million mortgage on the property.

The Wanamaker, located across from City Hall at 1300 Market St., embodies the challenges facing Philadelphia’s office market in the wake of a shift to more remote and hybrid work policies driven by the Covid-19 pandemic. The building was placed in receivership in September 2023, and its office occupancy has dropped from 96% in 2020 to just 23%, according to CMBS and receiver's reports.

TF Cornerstone replaced Wilmington Trust, which represented investors in the CMBS trust that previously held the loan, as the plaintiff in the foreclosure case against Rubenstein. The new debtholder is now seeking “to foreclose defendants’ interests in Philadelphia’s storied Wanamaker building,” according to a discovery motion Rubenstein filed Oct. 7 in the Philadelphia Court of Common Pleas.

In a response to the motion, TF Cornerstone called a foreclosure action the “inevitable consequences” of Rubenstein's failure to repay the loan when it matured in June 2023.

Full story: https://tinyurl.com/48tpehs4

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Swift Food Equipment Puts Old City Philadelphia Location Up For Sale

A family-owned business plans to sell its longtime Old City home and move to a larger space.

Swift Food Equipment expects to put the five parcels at 148 N. 2nd St. and 152-158 N. 2nd St. on the market soon, according to Billy Creagh of National Realty Commercial, who will be marketing the properties for sale. Creagh said the Swift family has not yet decided on an asking price.

The Swifts plan to relocate the restaurant equipment supply company to a larger warehouse space with a showroom elsewhere in the city. They declined to disclose the new location.

Until a sale is finalized, Swift Food Equipment will continue its regular operations at its Old City location, which the company has called home for more than a century. The properties were purchased in the 1920s by the grandfather of current owners Frank and Robert Swift, according to Creagh.

The site has always been used for retail and has not housed any manufacturing operations, he added.

Swift Food Equipment's four lots spanning 152-158 N. 2nd St. offer a combined 6,516 square feet and 64 feet of frontage along North 2nd Street, Creagh said. Those parcels include one three-story building at 152 N. 2nd St., one single-story building at 156 N. 2nd St., and two surface lots at 154 and 158 N. 2nd St.

Full story: https://tinyurl.com/ebx678bz

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Office-leasing demand starts to make a comeback nationally

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

Signs are emerging that companies are feeling more confident about their office-leasing decisions, prompting a bump in touring and leasing activity in several U.S. markets.

In New York City, there was about 18.6 million square feet of office-tenant activity on average in 2018 and 2019, according to data from CBRE Group Inc. (NYSE: CBRE). At the lowest point of the Covid-19 pandemic, that plummeted to 3.8 million square feet.

Right now, the firm is tracking 26 million square feet of office requirements in New York, said Paul Myers, vice chairman at CBRE who represents tenants in commercial real estate lease negotiations in New York City.

"The numbers are astounding," Myers said. "I don’t see it abating."

Since the pandemic, most of the office-leasing activity nationally has been driven by professional-services firms and companies in industries like law and finance — which returned to the office on a more regular basis, and sooner, than other industries. Technology, which had been the biggest driver of office-leasing activity right before the pandemic, has as an industry scaled back its leasing activity significantly since 2020 and has embraced remote work.

But in a metro like New York, office tenants in industries like tech, retail, media and entertainment — which had all been largely absent from the office market in the pandemic's aftermath — are back in a big way, Myers said.

The uptick in leasing demand may be coinciding with a few broader factors, including a more-certain economy and a bigger push by companies for their employees to be back in the office.

Amazon.com Inc. (Nasdaq: AMZN) made a big splash last month when CEO Andy Jassy said all employees would be required to be in the office five days a week starting in January. The company, however, is not alone in wanting to get more people back to the office more regularly.

"We’re hearing from more and more users of office space ... that they’re a little fed up with the uncertainty," said Michael Lirtzman, head of U.S. office leasing at Colliers International Inc. (Nasdaq: CIGI). "Not only is it an issue of office space, but they can’t plan investment, nor can they plan rent-expense projections, until they have certainty in terms of what they need in terms of their space."

Commercial real estate tech company VTS Inc., which tracks office leasing demand in several major U.S. markets, this summer said office demand hit bottom in late 2022 or early 2023. It made that determination in July of this year based on what it called a substantial period of stability and growth within the office market, including 12 consecutive months of year-over-year growth in tenant demand, and supporting economic factors.

The firm's VTS Office Demand Index, or VODI, saw a 17% increase at the end of the second quarter from the same quarter a year earlier and a 34% increase from when it bottomed out in December 2022 and January 2023.

Themes that have been prominent in the U.S. office market since the pandemic — companies taking less square footage and moving into trophy office towers — are still happening, Lirtzman and others say.

The uptick in leasing activity also will not erase the significant headwinds facing the U.S. office market, which continues to contend with record-high vacancy that's expected to continue to climb and a mountain of debt backed by office towers coming due in the coming years.

But companies today overall have more confidence in their leasing decisions, which may include signing a lease with a longer term compared to the one- and two-year extensions that were hallmarks a couple of years ago.

It's created a more-positive third quarter for some U.S. markets than what's been seen since the pandemic. Among markets tracked by Colliers, Manhattan and Dallas had significant positive absorption, at 3.5 million square feet and a little more than 1 million square feet, respectively.

While the national market isn't seeing the levels of absorption that were common in 2018 and 2019, Marianne Skorupski, director of national office research at Colliers, said certain markets, like some Sun Belt sites, are still proving to be attractive to office users post-pandemic.

Full story: https://tinyurl.com/ms39de7m

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Retail construction dwindles to new lows in Philadelphia

 By Brenda Nguyen CoStar Analytics

While Philadelphia has seen a steady construction pipeline in recent years, construction starts on new retail developments have fallen to a new low in 2024. With one quarter left in the year, 2024 is on track to record the lowest level of retail groundbreakings seen in decades, reflecting a similar trend observed nationwide.

Construction commenced on only 200,000 square feet of retail space this year across the Philadelphia region—a fraction of the more than one million square feet of retail construction starts that characterized previous years. The decline sets the stage for a record-low level of new retail inventory in the coming years, further constraining the availability of modern retail spaces in high demand.

Despite ongoing demand from retailers, new retail development has been underwhelming as developers increasingly focus on more quickly expanding sectors such as industrial and multifamily. Additionally, the combination of high borrowing costs and a slowdown in consumer spending have contributed to the sharp pullback in construction starts.

Consequently, national and local retailers face intensifying competition in securing in-demand locations due to a diminishing supply pipeline. Only 5% of the region's retail inventory was built within the last decade. Of this, a low 3.5% of this modern retail space is vacant, underscoring strong demand for this type of space. Given the limited availability, retail tenants increasingly find leasing opportunities by backfilling space that becomes available when retailers shutter existing locations due to bankruptcy or a company-wide restructuring.

Despite the current slowdown in retail construction, more than 6.5 million square feet of retail developments are listed in the proposal stage across the region. The retail sector's surprisingly strong performance in recent years has created pent-up demand for new projects.

While not every proposed project is guaranteed to break ground, the Philadelphia region should anticipate a pickup in new retail developments as interest rates gradually decline and consumer spending continues to strengthen. This should slowly alleviate the tight market conditions in coming years.

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Seller gets tenfold return on warehouse sale as Northeast Philadelphia industrial market remains hot

By Paul Schwedelson – Reporter, Philadelphia Business Journal

A New York investment firm has acquired a 305,000-square-foot distribution center next to Northeast Philadelphia Airport, adding to a recent flurry of industrial sales in that pocket of the city.

Eagle Cliff Real Estate Partners bought the building at 11350-11400 Norcom Road from 5601 Tulip LLC and Monarch Global Brands, real estate brokerage Binswanger announced.

The purchase price was $33.7 million, according to an industry source.

That price is 10 times more than the $3.3 million that the property traded for in 2016, according to property records. The building, which was built in 1965, is on a 16.8-acre property and fully occupied by Monarch and another tenant. Monarch is a wholesaler and manufacturer of microfiber, commercial linen, towels and rags.

In a statement, Eagle Cliff Director of Investments Peter Friedman called Northeast Philadelphia a “dynamic and supply-constrained submarket” and said the deal fits the firm’s infill acquisition strategy. Eagle Cliff bought a 192,000-square-foot industrial portfolio earlier this year in Paterson, New Jersey, and is nearing completion on a 108,000-square-foot industrial building in Holbrook, New York.

Full story: https://tinyurl.com/393hev6a

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NY investment giant buys Northeast Philadelphia warehouse for $83.5M

 By Paul Schwedelson – Reporter, Philadelphia Business Journal

Two years after construction was completed, the owner of a Northeast Philadelphia distribution warehouse has sold the build-to-suit property to a global investment firm for $83.5 million, according to property records.

The 282,737-square-foot building at 9801 Blue Grass Road is fully leased by TJ Maxx, HomeGoods and Marshalls parent company TJX Cos.

DH Property Holdings sold the property to Blue Grass Owner II LLC, an entity with the same New York address as alternative investment giant KKR (NYSE: KKR).

New York-based DH Property Holdings bought the 21-acre site for $10.5 million in 2020 from Huntingdon Valley real estate firm Sant Properties.

The building, which has 54-foot clear heights, is near the intersection of Roosevelt Boulevard and Grant Avenue and just west of the Northeast Philadelphia Airport. It’s within 3 miles of an entrance to I-95.

KKR has been active in the Philadelphia area. The firm bought three warehouses in the region this past summer as part of a $377 million portfolio acquisition of a total of six fully leased warehouses. KKR also sold the Bourse building and 400 Market St. in Old City for a combined $41 million. The firm has also said it could soon sell two more Old City properties.

In 2021, DH Property Holdings received a $62 million construction loan for the warehouse at 9801 Blue Grass Road.

"We are merchant builders,” DH Property Holdings Principal Dov Hertz said in an email to the Business Journal. “That is our business. We build, sometimes we hold for a few years, let the deal stabilize, and then we sell. But we’re not in the long-term game — we’re focused on getting a return for our investors through a capital event.”

Full story: https://tinyurl.com/2vrjm5nv

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Temple University buys North Broad Street shopping center for $8.2M

 By Paul Schwedelson – Reporter, Philadelphia Business Journal

Temple University has acquired a North Broad Street shopping center near its health system campus and may add medical offices at the site.

Temple paid $8.2 million to Wynnewood-based Overbrook Investment Properties LLC for the 45,290-square-foot retail strip, according to property records. The site is fully occupied except for a 11,447-square-foot former Rite Aid store.

The property at 3216-60 N. Broad St. is on the southwest corner of Broad and Westmoreland streets, south of Temple University Hospital and facing Temple’s Maurice H. Kornberg School of Dentistry.

Temple Health CEO Michael A. Young said the health system is considering providing primary care physician services at the site. If those plans come to fruition, those services would fill the former Rite Aid space and the other retail tenants would remain, Temple spokesperson Steve Orbanek said.

Current tenants include Pizza Hut, PNC Bank, Philly Pretzel Factory and Fine Wine & Good Spirits. The property also includes a 14,710-square-foot parking lot adjacent to the former Rite Aid store.

Overbrook Investment Properties, which built the retail center in the early 2000s, considered developing five stories of residential above ground-floor retail, but only built one story due to economic conditions, according to MPN Realty’s marketing materials for the property.

The retail strip was up for sale prior to Rite Aid’s closure near the end of 2023. Once it closed, the site became more attractive to potential users and developers

Full story: https://tinyurl.com/3un9b7mp

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Office market hit a milestone — but maybe not the bottom — in Q3

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

Early estimates of third-quarter market data suggest a key metric of the national office market may have held steady in the most recent three-month period, a glimmer of hope for a commercial real estate sector that's been ravaged since the pandemic.

But it's too soon to declare victory.

Preliminary third quarter data by Moody's Analytics Inc. found the office vacancy rate nationally among markets it tracks was 20.1%. That's the same rate it was the prior quarter, when it hit an all-time record high by Moody's measurements, and ends a three-quarter streak of successive new record high vacancy.

But while a vacancy rate that held steady over the course of two quarters could suggest the broader office-market economy is beginning to stabilize, one quarter of data isn't enough to say definitively the market has hit bottom.

Matt Reidy, director of commercial real estate economics at Moody's, said it's likely the national office market is still to see a little bit of upward vacancy over time, given how lengthy office leases are.

Even though the Covid-19 pandemic began more than four years ago, which dramatically upended the role of the office, many companies still haven't fully settled out their permanent post-pandemic real estate needs — although more CEOs are requiring returns.

"It takes a long time for office vacancies to play out because leases are longer in nature," Reidy said. "Leases signed before the pandemic are either just coming due or may not be up for renewal for several more years. It’s going to be a slow drip, drip, drip on the vacancy side."

A similar story is playing out in some local markets, too. Greater Boston, for example, posted a decline in its office-vacancy rate in the third quarter for the first time since the pandemic, the Boston Business Journal reported. But Matt Daniels, New England brokerage lead, told the paper he's "not calling bottom yet.”

Still, there's been some renewed optimism for the office market in recent weeks, as the Federal Reserve last month lowered the target range for the federal funds rate by half a percentage point and Amazon.com Inc. (Nasdaq: AMZN) said it would require its employees to be in the office five days a week in 2025.

It's spurred questions about whether a broader shift away from even hybrid work could occur, prompting — once again — demand for office space.

But at the current time, it's still too soon for most office-market watchers to say whether such a storyline will play out.

Full story: https://tinyurl.com/yc6wmkpf

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Delco warehouse trades for 41% more than it sold for two years ago

By Paul Schwedelson – Reporter, Philadelphia Business Journal

Velocity Venture Partners has sold one of the largest industrial buildings in Delaware County for $59 million, an increase of 41% from when the firm bought it two years ago.

The 468,000-square-foot warehouse at 6250 Baltimore Ave. in Yeadon was acquired by New York-based Lightstone Group, said Newmark’s Ryan Guittare, the listing agent in the sale that closed Monday. The deal is Lightstone Group's first in the Philadelphia area.

The price breaks down to $126 per square foot. The warehouse is just over the border from Philadelphia.

The property’s value increasing $17 million from the $41.75 million in paid two years ago speaks to the strength of Philadelphia’s industrial market, Velocity Founding Partner Zach Moore said. Bala Cynwyd-based Velocity spent $4 million renovating the roof, parking lot, exterior facade and other areas with significant deferred maintenance. The firm also signed about 200,000 square feet of new leases, adding to the building’s value.

“It’s obviously a great outcome for us from a sales perspective, number one,” Moore said. “But number two, I think it really shows we did a good job of identifying that infill marketplace is well in demand.”

Full story: https://tinyurl.com/tbkh9a3f

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142-year-old Conshohocken property home to a bed and breakfast up for sale

 By Emma Dooling – Reporter, Philadelphia Business Journal

A 142-year-old Montgomery County property currently home to a bed and breakfast is up for sale.

The six-bed, six-and-a-half-bath George Washington Wood Bed & Breakfast in Conshohocken is asking $3.2 million, owner Joe Rutkowski told the Business Journal.

The sale includes the three-story property along with its furnishings and the bed and breakfast business.

Rutkowski purchased the 0.19-acre property with his late wife Carol for $485,000 in early 2016. The duo spent about three years renovating the 6,100-square-foot building before opening it as the George Washington Wood Bed & Breakfast in March 2019.

Carol Rutkowski died in late 2020 following a battle with cancer. In the years since, Joe Rutkowski continued to operate the bed and breakfast, including using it as an event venue for nearby Conshohocken restaurant Brunch. The bed and breakfast shuttered over the summer.

Rutkowski said the property was his wife's "dream" and "labor of love." She grew up blocks away from the home and had told Rutkowski since they got married in 1979 that she would eventually buy the building. Without her to run the bed and breakfast with him, he has decided to offload the property.

“It was an adventure, but now it’s time to let it go,” Rutkowski said.

Located at 201 E. 5th Ave., the George Washington Wood Bed & Breakfast offers an office, a living room, a dining room, a half bath and a commercial kitchen on the first floor, according to Rutkowski. The second level offers four guest rooms, while the third floor houses a primary suite and a smaller suite.

Each of the six bedrooms has its own bathroom. The property also has a six-car parking lot in the rear.

Full story: https://tinyurl.com/5n8ctxmh

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Industrial sublease space swells in Eastern Pennsylvania

By Brenda Nguyen CoStar Analytics

The eastern Pennsylvania region, which includes major areas such as Philadelphia, the Lehigh Valley, Scranton and Harrisburg, encompasses more than 1.4 billion square feet of industrial inventory representing more than 7% of the total industrial space across the United States. Its strategic location at the center of the country’s largest concentration of spending power has historically contributed to a strong overall performance.

However, over the past several quarters, the region has encountered a downturn in demand primarily attributed to a slowdown in consumer spending and elevated borrowing costs. In response, several big-box facilities have been listed for sublease. As of the third quarter, the sublet share of total available space has seen a notable increase rising from 2.3% to 11.3% in the span of two years. Struggling retailers and third-party logistics providers have been behind much of this increase in sublet availability.

Earlier this month, British fashion e-retailer BooHoo Group announced plans to close its 1.1-million-square-foot warehouse at the First Logistics Center @ 283 in Londonderry Township, Pennsylvania. This facility is expected to close by November 11.

The company’s decision to shut down its U.S. operations and fulfill orders from its automated distribution center in Sheffield, United Kingdom, suggests U.S. sales have not been as strong as expected just over a year since the company occupied the facility in 2023.

Back in May, Smuckers also listed its 1.14-million-square-foot facility in Newville, Pennsylvania for sublease. The company is open to subleasing anywhere from 525,000 square feet up to the entire facility. This listing is one of the largest sublet spaces on the market and is being marketed with an "aggressive sublease rate," according to real estate brokers.

The slowdown in home sales—currently at their lowest levels in over a decade—has also affected consumer spending on home improvement, furniture and home goods. Retailers in these segments have faced significant challenges. For example, Wisconsin-based kitchen and bath product manufacturer Kohler listed 425,000 square feet of its one-million-square-foot facility in Reading, Pennsylvania for sublease in March 2024 and Hollander Sleep & Décor put more than 350,000 square feet of its space in Pottsville on the sublet market last year.

Third-party logistics companies have not been spared from these economic pressures either. Broadrange Logistics, Returns Worldwide and All-Ways Forwarding are several logistics providers that have each listed more than 300,000 square feet for sublease in recent quarters.

As 2024 begins to draw to a close, CoStar is projecting the eastern Pennsylvania region to post the lowest level of industrial absorption for the full year—defined as the net change in occupied space—in over a decade. The first half of the year saw particularly challenging conditions, with negative absorption recorded for the first time since 2012 during the second quarter.

However, the adverse market conditions are expected to be temporary. Demand for goods is anticipated to increase throughout 2025 as the Federal Reserve has made one rate cut and indicated that lower interest rates are on the horizon.

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