Thursday, October 31, 2024
Wednesday, October 30, 2024
Philadelphia REIT positioned for post-pandemic office rebound as leasing demand regains momentum
Office landlords across the country are still facing a myriad of headwinds when it comes to the market's post-pandemic recovery, but for one Philadelphia developer, the gradual uptick in leasing has bolstered its optimism for the years ahead.
Brandywine Realty Trust, a real estate investment trust based in Philadelphia, reported a pickup in touring and leasing activity across its United States office portfolio as companies become more confident in expanding their real estate footprints. Most importantly, CEO Jerry Sweeney said the positive trajectory is expected to continue as the market rebounds back to pre-2020 levels.
"The key takeaways for us is that the overall market dynamics in our sector continue to improve," Sweeney told analysts on the company's earnings call Wednesday. "The overall market has been improving, albeit slowly, but our portfolio remains in solid shape, and we've got room for improvement over the next few years as we will — hopefully — see continued acceleration for leasing activity and continue to improve our market position."
In a sign of renewed tenant demand, tour activity across Brandywine's office portfolio jumped about 30% through the third quarter ended Sept. 30 compared to what it reported prior to the pandemic.
The landlord signed nearly 300,000 square feet in deals through the three-month period with another 185,000 square feet of new leases expected to commence before the end of the year. All of that has helped boost Brandywine's year-to-date total to roughly 820,000 square feet.
The REIT's portfolio includes roughly 65 properties that collectively span 12.2 million square feet is now about 88.7% leased.
Recognizing reality
Demand for office space across the country has dwindled in the years since the COVID-19 pandemic's 2020 outbreak. Tenants have collectively handed back more than 210 million square feet since the beginning of 2020, according to CoStar data. The national office vacancy rate has soared to a record high of nearly 14%, and increased financial pressure on landlords has helped result in plummeting property valuations.
For Brandywine, those widespread challenges pushed it to recently offload a suburban Philadelphia office portfolio for about $60 million, a price Sweeney said wasn't fantastic, but was in line with where the market stands today.
"We're at a time in the market where we really do need to recognize reality, even if it's something we don't particularly like," the CEO said. "To help us recognize that reality, we have to look at the net present value of holding a single asset and come up with a range for what the real value is. If we take it to market and get an offer that lands within that strike zone, we'll sell it. Even if it's a price we don't particularly like, it's the right financial decision for the company."
Some of those lingering challenges have also pushed Brandywine to gradually pull the plug on its presence in Washington, D.C., a market Sweeney said has long taken a back seat to its focus on Philadelphia and Austin, Texas. The landlord owns a handful of properties in the area that, once the investment market improves, it plans to eventually sell.
Brandywine posted a net loss of about $157.5 million for the third quarter, largely a result of impairment costs the landlord incurred through the period.
Despite the loss, the REIT boosted its outlook for the remainder of the year, largely due to the pickup in leasing activity it has experienced across its portfolio.
"Our existing portfolio remains in very solid shape," Sweeney said. "We're positioned to be a strong participant in the market's eventual recovery."
Tuesday, October 29, 2024
Monday, October 28, 2024
Why EQT Exeter, joining other property investors, says it’s a ‘compelling time’ to buy
By Andria Cheng CoStar News
To get a sense of why commercial real estate deals have been picking up this year, take a look at EQT Exeter, the real estate arm of Swedish investment giant EQT AB and one of the world's largest industrial property owners. It's been leaning into acquisitions as the impact of higher borrowing costs led the Federal Reserve to cut its benchmark interest rate last month.
Henry Steinberg, a longtime company veteran and former president of EQT Exeter North America who was promoted last month as global head of EQT Exeter, said the firm is “rapidly accelerating” its capital deployment.
"We have this unique opportunity right now where there's some level of distress in the market. ... You have owners of real estate that need to sell," he said in an interview. “We think it's a compelling time to invest in real estate after a couple-year period of rapidly increasing and higher interest rates.”
The strategic shift is significant because EQT AB is ranked, in terms of money raised, as the third-largest private equity firm worldwide by Private Equity International magazine this year, just after Blackstone and KKR. EQT AB has the equivalent of about $265 billion in assets under management, a company spokesperson said, adding Radnor, Pennsylvania-based EQT Exeter's assets under management totals about $31 billion.
In a sign of EQT Exeter opening its wallet again, a $5 billion U.S. industrial flagship fund that "largely sat out all of 2023" has quadrupled spending from the first quarter through the third quarter, Steinberg said in the interview this week at EQT AB’s first U.S. capital markets event in New York.
As to EQT Exeter’s investment focus, Steinberg said industrial property, which makes up about 95% of its portfolio, remains a big growth opportunity despite some recent signs of a market slowdown.
“We've seen the bid-ask spread between buyers and sellers close, and it didn't close because our bids went up. Our math is the same, but now we're winning a lot more deals."
That's because owners facing maturing loans and still elevated interest rates were more willing to sell at lower prices than they would have wanted, he added.
"We're investing some of our flagship funds now at what we think are compelling risk-adjusted returns, at a significant discount to peak pricing," he said. "Sellers' pricing expectations came down, and where they were willing to transact is actually where the math makes sense based off of the higher cost of capital."
Time to buy
EQT Exeter's position reflects a shift in commercial real estate sentiment. U.S. commercial real estate investment sales in the second quarter rose quarter-over-quarter and annually, the first such increase since the second quarter of 2022, according to the brokerage Colliers' second-quarter capital markets report released in September.
"Major investors are back in the market, bidding on properties and acquiring portfolios," the report said. "Statements from investors support the idea that now is an ideal moment to acquire commercial real estate. At the same time, private investment has kept the market moving. Near-record reserves are waiting to be deployed, with investors looking across the capital stack on both the debt and equity sides."
Among the major property types, the return of institutional investors seems most "prevalent" for industrial properties, according to Colliers.
The CEO of the world's largest commercial property owner, Blackstone's Stephen Schwarzman, recently said the Fed’s “easing the cost of the capital" will be "a catalyst for transaction activity.”
Prologis, the biggest global warehouse owner and developer, this month said it's "scouring the market for opportunities” as it sees a "very attractive market for acquisitions."
Still, there's some caution among investors. Even though the Fed cut its benchmark rate by a half percentage point, leading to real estate “valuations to bounce off the bottom a little bit,” there's a sign the market is still in distress, Steinberg said.
He pointed out the 10-year Treasury yield, which he described as “the barometer that everyone in real estate uses to measure returns against,” has remained over 4%. That rate, after dropping to about 3.6% in September, has moved up to about 4.2%. Higher Treasury yields signal higher borrowing costs with commercial real estate asset values remaining pressured, industry professionals have said.
“Long-term rates have held consistently higher,” he said. “We believe that higher-for-longer trends is going to last. There's still going to be those pressures on owners of real estate to sell when their debt matures. … We think it’s a buying opportunity.”
For example, the newly unveiled EQT Exeter Real Estate Income Trust this month said it bought a last-mile delivery center leased by Amazon in the Seattle region’s biggest industrial property sale ranked by price in nearly two years. The brokerage JLL later said EQT Exeter picked up a four-building industrial portfolio near Columbus, Ohio, where CoStar data shows Amazon is a tenant. In August, EQT Exeter REIT announced two other industrial acquisitions totaling over $245 million.
Rising vacancy
Industrial properties, despite a promising long-term outlook, have suffered a recent setback, according to analysts.
The U.S. market has seen nine consecutive quarters of rising vacancy "because of new developments delivering vacant," said Adrian Ponsen, director of U.S. industrial market analytics at CoStar Group, the publisher of CoStar News. The industrial vacancy rate has risen to at least a 10-year high of 6.79%, sending the market asking rent to rise at its slowest pace in at least 10 years, CoStar data shows.
“Once interest rates started to rise in 2022 the spigot for speculative construction completely stopped," Steinberg said. "This is true in both Europe and the United States. … We’ve come a little bit off the line in terms of demand, because companies took down so much space during the pandemic. They have capacity in their supply chains. [But] we don't think the long-term trend of e-commerce is changing. We think that the next generation is going to order more online than the current generation, and that's going to continue to drive demand in the long run."
The long-term industrial outlook in Europe may be even more favorable as the adoption of e-commerce there is behind the United States, according to Steinberg.
“It's an older society, meaning that from a land development perspective, it's been much harder to acquire property and build speculatively in Europe than in the United States," he said. "Other than a handful of pockets, Europe is generally structurally undersupplied. The industrial stock is extremely old and, in many cases, functionally obsolete. … You have a really unique opportunity in Europe where we think demand is going to increase rapidly, and supply is, by nature, constrained, and the existing stock is not a modern stock.”
Steinberg said he also sees big growth to come in data centers needed to handle rising demand for artificial intelligence and cloud computing.
EQT Exeter is looking beyond industrial properties too. Like its larger rival Blackstone, the firm is also betting on multifamily investments globally as Steinberg sees the property type as “undersupplied.”
As to the office sector, Steinberg said while EQT Exeter has “historically” done “very well in office,” he said “office, particularly in the United States, is a very challenged space.”
“At the moment, I don't see the return justifying the risk,” he said. “The pandemic accelerated functional obsolescence in office space. … If you don't have the best building with the best amenities in the market, it's hard to predict if you can ever lease your office building again.”
Friday, October 25, 2024
GSK plans $800M expansion of Pennsylvania drug manufacturing facilities
By John George – Senior Reporter, Philadelphia Business Journal
GSK, the London-based Big Pharma company that has operations in Philadelphia and Montgomery County, said Thursday it plans to invest up to $800 million to expand its manufacturing operations in Pennsylvania.
The company said the spending on a new "multi-purpose facility" at its campus in Marietta, Lancaster County, represents its largest-ever U.S. manufacturing investment. The project is expected to create 200 new jobs.
Pennsylvania is investing $21 million in the project, making it the largest state-supported economic development project in the history of Lancaster County. The state funding package includes $18 million in a Redevelopment Assistance Capital Program (RACP) grants, a $2.35 million Pennsylvania First grant, and a $645,000 WEDnet grant to train employees.
Rick Siger, secretary of the Pennsylvania Department of Community and Economic Development, said the GSK project is an example of the state's focus on growing the life sciences industry under Gov. Josh Shapiro's 10-year economic development strategy.
"The Commonwealth is home to nearly 3,100 life sciences firms," Siger said in a statement. "We will continue to make bold investments like this one to further boost the industry."
GSK (NYSE: GSK) said a new 300,000-square-foot plant will be designed to manufacture sterile liquid vaccines and medicines, and will also house a research and development pilot plant to manufacture medicines for clinical trials.
Additionally, GSK plans to establish a new vaccines drug substance plant at the site, dedicated to manufacturing products based on the company’s novel MAPS (multiple antigen presenting system) technology, subsequent to future regulatory submissions and approvals.
The project will also involve renovating existing buildings on the Marietta campus at 325 North Bridge St.
"This landmark investment will establish Marietta as an innovation and manufacturing hub capable of delivering next generation medicines and vaccines to people around the world," said Regis Simard, GSK's president for global supply chain, in a statement.
Full story: https://tinyurl.com/42y9jn3n
Brandywine Realty Trust sells 5-building office complex for $65.5M
By Paul Schwedelson – Reporter, Philadelphia Business Journal
A partnership that made a splash in the suburban Philadelphia office market a year ago has made another, purchasing Plymouth Meeting Executive Campus at a discount.
Eatontown, New Jersey-based FLD Group and New York’s Adjmi family bought the five-building Class A office complex for $65.5 million from Brandywine Realty Trust (NYSE: BDN). The campus totals 521,288 square feet, meaning the buyers paid $126 per square foot.
When it was put on the market in early 2023, industry sources estimated Plymouth Meeting Executive Campus could sell for more than $100 million.
The acquisition comes a year after the same partnership bought the five-building Bala Plaza in Bala Cynwyd for $185 million. The owners are planning a major redevelopment of the 1.1 million-square-foot office complex with residential, retail and a hotel.
Bobby Adjmi,principal of A&H Acquisitions, said there are no redevelopment plans at Plymouth Meeting Executive Campus. The five office buildings were 77% occupied when the sale closed on Sept. 26, Brandywine reported.
"We thank Brandywine for maintaining and keeping the asset in pristine condition," Adjmi said in a statement to the Business Journal. "As we look forward to rebranding and providing our clients with improved amenities and attentive service that a first class office campus deserves, we wholeheartedly expect our companies to want to grow in place with us and we welcome new business partners to join."
Adjmi said he was attracted to the portfolio's quality, occupancy and proximity to highways.
Plymouth Meeting Executive Campus spans 22 acres and was built in the mid-1980s and early '90s. Brandywine, Philadelphia’s largest office landlord, bought four of the buildings in 2002 for $67.2 million, according to filings with the U.S. Securities and Exchange Commission. It added the fifth for $9.1 million in 2012, filings show, putting the combined acquisition cost at $76.3 million.
The price paid by FLD Group and the Adjmi family is a drop of $10.8 million, or 14%, and less than what Brandywine paid for four of the five buildings more than two decades ago.
"If we go to the marketplace and the marketplace gets within that strike zone we typically will sell," Brandywine CEO Jerry Sweeney said Wednesday during the company's earnings third-quarter call, "even if we don't necessarily like where the price was versus our previous expectations, it's the right financial decision for the company."
The five buildings are:
600 W. Germantown Pike — 89,626 square feet;
610 W. Germantown Pike — 90,088 square feet;
620 W. Germantown Pike — 90,183 square feet;
630 W. Germantown Pike — 89,870 square feet;
660 W. Germantown Pike — 161,521 square feet.
Full story: https://tinyurl.com/44thufcn
Tuesday, October 22, 2024
Nucleus RadioPharma to Located to Spring House Innovation Center Montgomery County PA
By John George – Senior Reporter, Philadelphia Business Journal
A Minnesota radiopharmaceutical contract development and manufacturing organization has selected Montgomery County as the site of a new 48,000-square-foot facility.
Nucleus RadioPharma's plant will located at the Spring House Innovation Park in Lower Gwynedd. It will house research, development and commercial production under one roof.
The company's expects to create 50 new local jobs. Nuclear RadioPharma declined to disclose the cost of the project.
The Spring House Innovation Park, previously home to a Rohm & Haas complex, has been transformed and is being managed by a joint venture involving MRA Group and Beacon Capital Partners.
Nulceus RadioPharma will occupy building 14B in the business park located off Norristown Road.The building was stripped down to structural steel and concrete and is being completely redone.
It's one of two new projects announced Monday by Nucleus RadioPharma. The company is also opening a 53,000-square-foot research and development and manufacturing site in Mesa, Arizona. Nucleus RadioPharma expects the two plants to be completed by the middle to end of 2026 and increase the company's production capacity by 200%.
Nucleus RadioPharma CEO Charles C. Conroy told the Business Journal the company picked the Montgomery County site because of "strong partnerships in the area," most notably Fox Chase Cancer Center. He also said the location gives them "great access" to the northeastern portion of the country and allows for international shipping to Europe.
Full story: https://tinyurl.com/33zksjfk
Monday, October 21, 2024
October brings increased apartment specials for renters in Philadelphia's Center City
By Brenda Nguyen CoStar Analytics
Midwood Investment & Development’s 210S12 apartment building, which added 378 units, is offering two months of free rent on a 13- to 16-month lease and up to two and a half months for longer leases. This was the largest new high-rise multifamily development in Center City since Jessup House, a 399-unit high-rise apartment completed in mid-2023. A year after its completion, Jessup House still offers up to two and a half months of free rent on an 18-month lease.
A few blocks away, Lubert-Adler completed the first phase of its conversion of The Bellevue, which included 155 units. The Residences at the Bellevue is currently offering specials that include one month of free rent and a free sporting club membership plan, which begins at $195 per month.
Southern Land Co.’s Josephine, which has 254 units, is offering two months of free rent on a 14-month lease in addition to waived application and amenity fees.
With another 1,185 units currently underway across six other multifamily developments, concessions will likely persist into the spring leasing season of 2025 as developers contend with the expanding supply competition.
Exeter buys Amazon-leased warehouse for $81.5 million
By Nick Pasion – Reporter, Puget Sound Business Journal
Radnor-based EQT Exeter Real Estate Income Trust purchased a 34-acre property near Seattle that houses an Amazon.com Inc. warehouse for $81.5 million.
EQT Exeter acquired the 202,464-square-foot warehouse at 2871 S. 102nd St. in Tukwila for $402.54 per foot, nearly double the average rate across the Seattle area. King County's assessed value for the property is $80.9 million. The REIT purchased the property through EQRT 2871 102nd LP, a Delaware-registered entity.
The property is about 11 miles south of downtown Seattle.
“South Seattle is a highly sought-after, low-supply infill market with limited developable industrial land, an aging building stock, and strong appetite for warehouse space,” EQT Exeter's Ali Houshmand said in a statement.
The seller was a limited liability company linked to Dermody Properties, a Reno, Nevada-based industrial developer. The company did not return a request for comment.
EQT Exeter took out a $109.6 million loan with State Farm, King County records show.
EQT Exeter, the real estate arm of Swedish investment firm EQT, has been making major investments in real estate in other areas of the U.S. this year, too. That includes in Austin, Texas, and in California's Inland Empire. EQT Exeter paid roughly $450 million earlier this year for a 24-building portfolio across the Minneapolis/St. Paul metro area.
Full story: https://tinyurl.com/rk55hn59
Thursday, October 17, 2024
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.
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
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
Tuesday, October 15, 2024
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
Monday, October 14, 2024
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
Friday, October 11, 2024
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.
Thursday, October 10, 2024
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
Wednesday, October 9, 2024
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
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
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
Tuesday, October 8, 2024
Thursday, October 3, 2024
Wednesday, October 2, 2024
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
Tuesday, October 1, 2024
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
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.
