By Paul Schwedelson – Reporter, Philadelphia Business Journal
Brandywine Realty Trust CEO Jerry Sweeney expects office sales to pick up in 2025, after years of a frozen market and uncertainty swirling around interest rates.
With rates projected to continue stabilizing and possibly dropping further, Sweeney said the increasing access to capital will lead to more sales opportunities.
“The market has been really — fear has driven everything,” Sweeney said. “All the investment decisions, development decisions, capital allocation decisions. I think we’re getting to a point now, with visibility of the interest rate climate, that greed will start to overtake fear.”
Philadelphia-based Brandywine (NYSE: BDN) is the city’s largest office landlord. Speaking at the Urban Land Institute’s 2025 Real Estate Forecast event Tuesday at the Bellevue Hotel, Sweeney noted the volume of office transactions have been at a historic low, around 60% to 70%.
A key factor in the slowdown has been not just interest rates, but also widespread concerns about the office market as companies settle into their long-term remote and hybrid work routines. Sweeney highlighted the dichotomy in the office market, however, in which high-quality buildings are almost entirely leased and performing well. Meanwhile, low-quality buildings face significant challenges as occupancy drops and loan payments come due, setting up potential foreclosures.
Sweeney said the average sale price of large-scale office buildings has been well below $100 million, which he attributed to debt capital markets that “have not been open.”
“You’re starting to see beginning signs of the debt markets recovering,” Sweeney said. “I think debt has been the gating issue for a lot of transactional buying, particularly in office and some of the other sectors as well.”
Wayne Avenue Enterprises President Bill Hankowsky echoed Sweeney and said the overall lending environment has a lot to do with availability of capital, not just the amount of the loan. Hankowsky was previously CEO of Liberty Property Trust, which developed Comcast Center and Comcast Technology Center, and he's also on the board of Citizens Bank.
Hankowsky cited three recent regional bank failures that led to increased regulation for lenders. As a result, banks have lowered their exposure to commercial real estate, Hankowsky said. But a shift could take place in 2025.
“I think what will happen in ‘25, I think it’ll still take probably two more quarters for banks to get their CRE exposure and their portfolios to the levels they want,” Hankowsky said. “But then I think they will reopen for business.”
In Philadelphia, five Center City office sales combined to wipe out $151 million of value based on the properties’ assessed value, a 61% decrease. The sales, though, were largely caused by decreasing occupancy or an upcoming loan maturity.
Well-performing office buildings have yet to trade since the office market is at or near the bottom of its cycle after values have dropped dramatically. If the debt market loosens like Sweeney predicts, the Philadelphia office market could finally have a sale that isn’t for a struggling building.
Buildings that have recently sold, and are now being planned to be converted to other uses, means there’s less overall office space available.
Full story: https://tinyurl.com/2a8rmu72
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