Duane Morris downsizing nearly 20% of Center City office space

 By Paul Schwedelson and Jeff Blumenthal – Philadelphia Business Journal

Duane Morris has signed a long-term lease renewal at Duane Morris Plaza to downsize by 45,000 square feet, continuing the trend of law firms reducing large chunks of their office footprint.

The renewal drops Philadelphia-based Duane Morris’ space at the Center City office tower from 241,022 square feet to 195,757 square feet, a 19% reduction. The law firm will go from occupying seven and a half floors down to six.

Duane Morris already gave back 16,000 square feet, or 6% of its space, when it exercised a contractual option in 2022, meaning the firm is now taking a quarter less space from its original previous lease.

In addition to the renewal, Los Angeles-based building owner Oaktree Capital Management is refurbishing the lobby and implementing system upgrades.

The lease includes 183,000 square feet of office space and the 12,000-square-foot Morris’ Café. The building, at 30 S. 17th St. in the heart of Philadelphia’s office district, will retain Duane Morris Plaza as its name.

The law firm’s existing space is also planned to undergo a full renovation, which is scheduled to start in the fall and take 18 months to complete. Duane Morris’ previous lease was set to expire in March 2026.

Duane Morris is one of the largest law firms in the Philadelphia area, according to Business Journal research, with more than 240 local attorneys.

The lease renewal comes after Oaktree Capital Management’s $105.3 million commercial mortgage-backed securities (CMBS) loan for the building was transferred to special servicing in late January, according to servicer notes.

A month later, servicer notes reported the “lender is negotiating a loan extension that will enable the borrower to inject new equity and extend the Duane Morris lease.” The CMBS loan isn’t set to mature until November 2027. Wells Fargo Bank is the loan’s master servicer while Rialto Capital is the loan’s special servicer.

Reserves were used in February and March for the monthly interest payment, according to a CMBS report.

By retaining Duane Morris as its largest tenant, the 20-story, 617,476-square-foot building has a clearer future. The law firm had considered moving elsewhere in Philadelphia’s central business district, a move that would’ve hurt Oaktree Capital Management’s financial stability with the building.

Full story: http://tiny.cc/8upe001

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NorthPoint plans 247-acre data center campus at former U.S. Steel site in Bucks County

 By Paul Schwedelson – Reporter, Philadelphia Business Journal

In a change of strategy, NorthPoint Development plans to incorporate a 2 million-square-foot data center at its massive Keystone Trade Center in Bucks County.

The $1.5 billion industrial project at a former U.S. Steel site in Fairless Hills is entering its third phase.

Billed as a “digital infrastructure campus” by NorthPoint, the planned data center will span 247 acres and be spread across 10 buildings ranging in size from 112,000 square feet to 217,000 square feet. Each building is planned to be one or two stories tall.

The Kansas City-based developer received approvals from Falls Township’s Board of Supervisors for construction of the data center buildings.

NorthPoint’s previous plans for the 247-acre parcel called for four distribution warehouses made up of a 1 million-square-foot building at 1 Ben Fairless Drive and more than 3 million square feet of warehousing space at 700 S. Port Road.

“This is in the spirit of diversification of this site,” NorthPoint attorney Mike Meginniss said in a Falls Township news release announcing the approvals.

NorthPoint did not respond to a request for comment.

The developer has already completed and leased the first two phases of the Keystone Trade Center, which totals 5.5 million square feet of industrial space, according to marketing materials.

In January, the Business Journal reported that Monroe, New Jersey-based US Elogistics signed a lease for 518,000 square feet at a recently completed 1.04 million-square-foot building on the industrial campus.

The 1,800-acre Keystone Trade Center development could be built out to 20-plus industrial warehouses, distribution centers and data centers totaling between 10 million square feet and 15 million square feet.

NorthPoint's shift to a data center represents the changing dynamic of the market. While demand for industrial warehouse space spiked earlier this decade, it’s cooled off significantly in the past two years.

It’s another example of how NorthPoint has exhibited flexibility while building out the mega project. Two years ago, NorthPoint sold a 69-acre pad-ready site with entitlements, mass excavation and some utility work already completed to German grocer Lidl for $144.6 million. NorthPoint originally planned to build a 1.2 million-square-foot warehouse on the site.

Full story: http://tiny.cc/ktpe001

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Philadelphia developer buys Center City office building for potential multifamily project

 By Paul Schwedelson – Reporter, Philadelphia Business Journal

An entity affiliated with Eclipse Development, a new Philadelphia development company, has bought a Center City office building from the American Red Cross in a prime location for a potential multifamily project.

The entity bought the five-story, 52,676-square-foot office building for $7.2 million, according to property records.

Eclipse’s plans for the property are still being formed. A potential option includes leasing office space on a short-term basis for up to two years before either converting the existing building to multifamily or tearing it down to make way for a ground-up multifamily building, Eclipse co-partner Ryan Kalili said.

The property is on the northeast corner of 23rd and Chestnut streets, a block east of 2400 Market St., an office building that was redeveloped and expanded in 2018 and a block south of law firm Morgan Lewis & Bockius’ new headquarters at 2222 Market St.

The purchase price came out to $137 per square foot. It was most recently assessed by the City of Philadelphia at over $12 million, or $229 per square foot.

“It’s undeniable that the location is phenomenal,” Kalili said. “You’re on a great corner in Center City. We had decided we wanted to do a project in Center City. This particular parcel made sense for us because there was value in the existing structure as well.”

Eclipse is led by Kalili, 26, along with co-partner Michael Dinan, 26, and Eric Haab, 27, who is development associate. They all previously worked for Archive Development, which specialized in development in Fishtown and throughout Philadelphia, but didn’t have any Center City projects.

The Business Journal first reported last week that Eclipse also recently purchased a development site at 21st and Ludlow streets from Parkway Corp.

The former Red Cross office building is fully vacant, which appealed to Eclipse, since that would make a residential conversion or demolition of the building less challenging.

The property sits in a CMX-4 zone, allowing for a mix of commercial and residential uses. Dinan said Eclipse is beginning its leasing effort for prospective office tenants, which could serve as a temporary solution while evaluating a long-term path forward.

Full story: http://tiny.cc/2tpe001

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Increasing expenses put squeeze on retailer profits in Philadelphia

 By Brenda Nguyen CoStar Analytics

Philadelphia's retail market showed signs of softening heading into 2025, with annual net absorption, the net change in occupied retail space, falling well below the historical average. Despite this slowdown, the local market remains relatively tight, especially in the suburbs.

While retail locations in Center City face challenges from reduced office occupancy, limited new construction and fewer demolitions of older retail space have kept the market stable. Here's what CoStar market analytics is hearing from local industry players in the Philadelphia retail market in early 2025.

Restaurants, gyms, beauty salons and daycare centers are the most common types of retailers seeking urban locations below 2,500 square feet

Several urban retail brokers report that restaurant and daycare centers have consistently signed leases in the past decade, but fitness and beauty businesses have gained in popularity in recent years. Second-generation restaurant spaces remain high in demand, given that a commercial kitchen build-out could cost over $200,000. Meanwhile, grocers and some banks have re-entered the downtown retail leasing market in search of available big-box locations.

Retailers are scrutinizing pro forma projects and construction costs more than ever

A developer commented that retailers are more actively engaged with the development process due to heightened costs. While hard construction costs have eased in the past year, they’re still at least 20% to 25% higher than in 2020. Additionally, extended development timelines further add carrying costs. As a result, retailers are making more construction site visits than in past years.

Operating expenses have increased faster than rent growth

A broker noted that while retail operating expenses haven’t increased as much as multifamily and industrial, tepid retail rent growth has squeezed profit margins for landlords with a higher proportion of caps on in-place CAM or common area maintenance expenses, referring to the charges a tenant pays to the landlord in addition to the base rent to cover the costs of maintaining shared areas of a property. Property taxes still make up the largest share of landlord expenses, but insurance has also increased significantly over the years. Since most retail leases are on a triple-net basis, tenants are still primarily responsible for footing the bill.

Insurance companies are scrutinizing claims more and require security measures by the insured to be eligible for claims

A retail landlord commented that insurance companies typically require tenants to enhance lighting, security personnel coverage, camera systems and secured access controls by the landlord or tenant to qualify for claims. Philadelphia tends to see higher claims frequency than Boston and Washington D.C. and similar levels as Chicago, Baltimore, New York City and Los Angeles in terms of frequency of claims and geographic concentration.

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Grocery-anchored Bucks County shopping center sells for $21 million

 By Paul Schwedelson – Reporter, Philadelphia Business Journal

The fully leased Bensalem Shopping Center has been acquired by a local private investor for $20.5 million, according to industry sources. 

An entity affiliated with the Popli family purchased the 109,057-square-foot property from Philadelphia-based Empire Realty Investments Inc., sources said. The sale price comes out to $188 per square foot.

The grocery-anchored shopping center is at the intersection of Street Road and Hulmeville Road, in between the Bensalem Township Country Club and Cecelia Snyder Middle School. It sits 15 miles north of Center City Philadelphia.

Bensalem Shopping Center, built in 1972, sits on a 9-acre property at 1903 Street Road and is 100% leased. Grocery chain Patel Brothers anchors the retail center while other tenants include Dollar General, Advance Auto Parts and Unlimited PCS.

Chapman Popli, president of Popli Group LLC, didn't provide a comment on the acquisition. Popli owns First Stop Tobacco Shop, according to business insight website Dun & Bradstreet, and other properties in the Bensalem area. The shop is at 1606 Street Road, less than a half-mile south of the shopping center.

The property has a 6.4% cap rate.

Full story: http://tiny.cc/p64d001

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Philadelphia’s small-bay industrial market retains strength despite climbing expenses

By Brenda Nguyen CoStar Analytics

Philadelphia's industrial market demonstrated resilience in early 2025, maintaining strong tenant demand despite the national slowdown in leasing activity. Vacancy rates rose as new inventory hit the market, but net absorption, the net change in occupancy, increased year-over-year. Key submarkets such as Burlington, New Castle and Bucks counties continued driving the region’s leasing momentum. Industrial properties also hit a four-year streak as the top investment choice regionally, by dollar volume. Against this backdrop, here’s what CoStar is hearing from players in the Philadelphia industrial market in early 2025.

Momentum for industrial spaces smaller than 300,000 square feet has been consistent, but leasing in larger buildings has been quite slow

One broker commented that small-bay facilities, those smaller than 100,000 square feet, are doing particularly well. The broker's team regularly gives site tours for tenants in this size segment. Meanwhile, the “home run” buildings have not received the traction landlords were hoping for in the past year. Based on CoStar data, only eight leases for more than 300,000 square feet have been signed in the past year, compared to nearly 700 leases for spaces smaller than 100,000 square feet.

Developers have delayed breaking ground on big-box developments but continue to move forward on warehouses ranging between 150,000 and 300,000 square feet

A couple of lenders mentioned they are becoming wary of financing large speculative industrial properties due to recent market saturation and higher vacancy rates in big-box facilities. Instead, they're favoring smaller industrial projects, perceived as less risky due to the consistency of demand. The concentration of smaller projects breaking ground reduced the volume of construction starts in the second half of 2024 to the lowest levels since 2018.

Several companies with leases in the city are seeking new locations in the suburbs following the surge in property taxes from recent reassessments

A handful of brokers commented that some industrial buildings in Northeast Philadelphia saw property taxes double following the city’s updated property assessments in recent years. Bucks County, as a bordering suburban submarket along I-95, has become a popular alternative location for tenants considering relocation.

Land prices have been a bigger deterrent than interest rates for new small-bay development

One developer mentioned that sellers are asking too much for their land, and it’s difficult to make the numbers pencil out with construction costs and achievable rents. Developers can work with higher interest rates, he says, but the cost basis makes many prospective projects not viable.

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New Jersey industrial leasing sped up in 2024

 By Mateusz Wnek CoStar Analytics

As 2024 industrial leasing data collection winds down, New Jersey's full-year tally shows a 14% year-over-year increase in new commitments. Total deal counts rose 6% in the past year, while new lease sizes increased 7% to 31,000 square feet.

The state's new leasing volume totaled 38.2 million square feet in 2024, reflecting strong growth of over 60% in Bergen and Burlington counties. Middlesex County, by far the largest industrial node in the state, led the pack in absolute leasing volume with 10.3 million square feet, even though it was 5% below its 2023 level.

Middlesex County’s industrial inventory is 240.6 million square feet, nearly a quarter of the state’s total. The area enjoys ample highway access and proximity to the port district, allowing for quick movement of imports throughout the Tri-State area.

Much of Middlesex County’s inventory is clustered along the New Jersey Turnpike in Edison and Cranbury and around Interstate 287 in Piscataway. Yet Woodbridge’s Port Reading community was home to the largest new lease signed in 2024.

Last February, Elogistek, a supply chain solutions provider, committed to occupying the entire 607,417-square-foot warehouse at the Port Reading Business Park. The Prologis-owned property was previously used by Bed Bath & Beyond as an e-commerce fulfillment center until 2023.

Meanwhile, Burlington County led the league tables with leasing volume as a percentage of existing inventory. Landlords inked 5.3 million square feet of new commitments, representing almost 7% of the area’s 78.2-million-square-foot inventory.

CIRRO Fulfillment, a leading global e-commerce fulfillment service provider, was the most active tenant leasing space in Burlington County. In May, the company leased 286,180 square feet at the Burlington North Logistics Center in Mansfield. Then, in September, CIRRO occupied the entire 806,000-square-foot distribution facility down the road at the Mansfield Logistics Park.

At the other end of the spectrum, Essex County posted an 18% decline in leasing activity, driven largely by the lack of available small-bay space desired by local businesses. Properties smaller than 50,000 square feet make up 36% of Essex County’s 93 million-square-foot industrial stock, which can be found predominantly in Newark, Fairfield and Clifton.

The availability rate of small-bay space in Essex County is at just 3.6%, among the lowest in the state, while the rate is at 8% for spaces larger than 50,000 square feet.

Last year’s pickup in leasing activity was a welcome sight for property owners, as the state’s overall availability rate edged down to 10.9%. The counties that powered leasing volume this past year will be in the spotlight again in 2025.

That’s because Middlesex, Bergen and Burlington collectively have 52.5 million square feet of available space, accounting for 45% of New Jersey's total. Notable listings can be found in recently completed big-box distribution and warehouse properties in Old Bridge, Cinnaminson and Teterboro.

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New King of Prussia retail building lists for $13.3M

By Paul Schwedelson – Reporter, Philadelphia Business Journal

A new 10,000-square-foot retail building facing the King of Prussia Mall is up for sale, an opportunity for a passive investor to own a property leased to at least two national chains.

The building at 129 S. Gulph Road is listed for $13.29 million, which equals $1,329 per square foot, a price per square foot that would rank among the highest in the region across commercial properties.

Construction on the 10,000-square-foot building is set to be completed by early summer, said MSC’s Jesse Dubrow, the property’s listing agent. Ten-year leases are in place for Mediterranean fast-casual chain Cava and breakfast and lunch chain restaurant First Watch, which both plan to open around the same time, Dubrow said. A tenant has not been signed for the third retail space.

The new development is owned by Wayne-based Gulph Creek Hotels and sits on the southwest corner of Gulph Road and Route 202, adjacent to the 136-room Residence Inn and 68-room The Prussia Hotel. MSC listing agent Douglas Green said 80,000 vehicles traverse the intersection daily, making it one of the busiest in Pennsylvania.

“The beauty of the asset, it checks every box that retailers look for,” Green said. “It’s an incredibly well-rounded site.”

A 168-room Best Western hotel previously sat on the property and was partially torn down to make room for the Residence Inn and the new retail building. The remaining portion of the Best Western was turned into The Prussia Hotel, a boutique hotel.

Gulph Creek Hotels intended to build the retail building and sell the property once it was completed. The project is just across Route 202 from the Simon Property Group-owned King of Prussia Mall and the planned Netflix House.

The two restaurants will be walkable from the two hotels, a key addition since neither hotel has an on-site restaurant.

“[Gulph Creek Hotels] was able to create a walkable, mixed-use site, which benefits the two hotels they’ve invested in,” Green said, “but also create an investment vehicle to get a return on their invested capital.”

Cava is set to take 2,100 square feet, First Watch is leasing 3,900 square feet and 4,000 square feet remains for a third tenant. Green, representing Gulph Creek Hotels in the leasing, said negotiations are ongoing for the third retail location.

Green said Gulph Creek Hotels is looking to avoid a third food and beverage tenant to manage crowds in the site’s parking lot. Instead, the space is likely to be leased to a tenant that provides a service to hotel guests and nearby residents.

Full story: http://tiny.cc/ontc001

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