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Brandywine leverages improving office market to help fuel disposition strategy

 By Katie Burke, Jonathan Lehrfeld CoStar News

One of Philadelphia's largest landlords is taking advantage of the national office market's recovery by selling off pieces of its portfolio to help solidify its financial standing.

Brandywine Realty Trust has closed more than $681 million worth of sales so far this year, more than double the $305 million estimate it set at the start of 2026, the firm said on its earnings call Thursday.

The activity underscores sellers' eagerness to capitalize on improving property valuations nationwide, according to the firm.

The real estate investment trust, whose portfolio is largely concentrated in its hometown of Philadelphia and in Austin, Texas, closed those deals despite "choppy capital markets," CEO Jerry Sweeney said. The landlord's disposition strategy is gaining momentum as the pool of prospective buyers continues to grow.

"We've made significant progress on our capital markets plan," Sweeney told analysts on the company's third-quarter earnings call. "The response from the market for the asset sales was fairly strong. We had some considerable interest, and the typical marketing process had between seven to 10 qualified bids."

One of the landlord's largest deals in the third quarter was the $240 million sale of a newly constructed building at 3151 Market St. in Philadelphia to Burlington Stores. The national off-price retailer closed on the property last month with plans to relocate its headquarters there in late 2028-early 2029.

Brandywine also landed a $151 million deal with global real estate investor Hines for the 405 Colorado office tower in downtown Austin, a sale that further underscores investors' willingness to raise their bets on the office market's continued rebound.

The proceeds enable Brandywine to reduce its debt and strengthen its financial standing — even if the macroeconomic outlook is far less stable. The landlord reduced its combined debt by $390 million in the third quarter, and executives said it will be able to cut an additional $100 million before the end of the year.

"The success of our sales program has resulted in significant debt reduction well ahead of plan, improved liquidity and lower forward capital costs, which is a very key point that we are focused on," Sweeney said. "The groundwork has been laid, and we plan on building on that continuing momentum to drive long-term value."

Back to buying

The lack of new construction, combined with growing space needs, stricter attendance mandates and strong corporate earnings, is rebalancing the supply-demand equation for some of the nation's largest office landlords. Since the start of the year, Brandywine, KBS, Highwoods Properties, BXP, Cousins Properties and others have reported growing urgency among tenants as premium office space becomes harder to find.

Office occupiers nationwide collectively signed more than 62.4 million square feet of leases over the past year, a roughly 16% jump from the prior year. At the same time, only 2.2 million square feet of new space has been completed over the same period, marking a nearly 45% year-over-year drop.

Net absorption, or the difference in space occupied versus vacated in a given period, has steadily climbed since the final months of last year, providing a welcome balm to the national vacancy rate after years stuck at a historic peak.

That rate has finally begun to drop, and in recent months, has fallen below 14% for the first time in years, according to CoStar data. The figure is even lower for premium office space, with vacancy rates for top-tier properties averaging about 8%.

As companies continue to sign on to more and larger deals, major real estate investment trusts and private landlords have become increasingly vocal about their plans to capitalize on the upswing — either by taking advantage of rising valuations to sell off some buildings or by scouting for opportunities to purchase attractive properties.

For Brandywine, that helped it finalize nearly 560,000 square feet of leases through the third quarter. The REIT ended the third quarter with a 90.5% leased rate throughout its portfolio, a figure that includes about 163,000 square feet of deals that will soon take effect.

Philly's office dynamics

Those improving office market dynamics are especially prevalent in Brandywine's hometown.

The REIT's Philadelphia-area office portfolio, comprising primarily trophy properties at the highest end of the quality spectrum, is 96% leased, a position Sweeney said he expects to improve as demand increases and the new development pipeline shrinks.

What's more, the city is home to several major office-to-residential conversion projects that are expected to reduce the region's office supply by up to 5 million square feet.

Philadelphia's office vacancy rate sits at 11.2%, according to CoStar's latest market report. While companies continue to lease office space in the city, fewer are making major changes to their footprints, according to a recent CoStar insight piece.

Even so, some of the country's most prominent tenants have committed to significant deals in recent months. Insurance Group Transamerica signed for space at Two Liberty Place, and JPMorgan finalized a deal earlier this summer to expand and relocate its regional hub to backfill some of Aramark's Center City headquarters space at 2400 Market St.

In Philadelphia and beyond, that traction is expected to help Brandywine's future disposition plans.

The REIT is planning to sell another $200 million worth of properties next year, Sweeney said, all part of Brandywine's effort to free up "additional flexibility."

"Our major focus is continuing to reduce our overall leverage and improving all of our key credit metrics to get back on the path towards investment grade," he said. "We keep that flexibility out there, based upon what we're seeing in the marketplace."

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Lehigh Valley warehouse construction starts back up even as earlier projects remain unleased

By Brenda Nguyen CoStar Analytics

Construction has restarted in the Lehigh Valley industrial market, driven by three major speculative warehouse projects that broke ground during the third quarter despite weak leasing and a lingering supply overhang.

Approximately 5.5 million square feet of warehouse space is under construction in late 2026, an amount equivalent to 3.4% of the market’s entire existing inventory. More than 80% of that pipeline is speculative, with most projects proceeding without committed tenants.

The pickup in construction is concentrated in three large projects, rather than a sign of a broad resurgence in development. The trio of bulk distribution facilities began construction in the third quarter, when foundation work began, and together account for more than half of the Lehigh Valley's active construction pipeline.

The projects include Panattoni’s 1.15 million-square-foot Building B at 3900 Commerce Way, the 877,019-square-foot Strykers Tradeport 78 development, and Trammell Crow Co.’s 866,350-square-foot Lehigh Valley Exchange.

The new construction projects are moving forward while the Lehigh Valley continues to work through an excess supply of warehouse space from the previous development cycle, particularly among bulk distribution facilities. Across the 17 warehouses larger than 500,000 square feet completed since 2021, roughly 45% of the space remains available for lease.

Long development timelines mean much of the space now under construction will not hit the market until 2027, giving leasing conditions time to improve. For now, the projects suggest developers are anticipating stronger future demand even as the market continues to digest the previous wave of speculative bulk distribution facilities.

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Office attendance rises in some major US cities

 By Dani Romero CoStar News

Workers returned to offices at a higher rate in September than they did in the year-earlier month, though attendance varied widely across major U.S. metropolian areas.

Occupancy across 10 large regions in the U.S. tracked by Kastle Systems rose to 55.4% of pre-pandemic levels in the week ended Sept. 30, up from 52.9% in the month-earlier week ended Aug. 26.

Kastle measures office occupancy against a March 2020 baseline — before widespread pandemic office closings — tracking attendance using anonymized keycard-swipe data from thousands of buildings nationwide.

The September reading was higher than the 54.1% recorded during the same week a year earlier.

New York saw the largest monthly increase, climbing to 66% of its pre-pandemic level from 53.8% at the end of August and 54.3% during the comparable week a year earlier. In Washington, D.C., occupancy rose to 52.2% from 45.8% at the end of August and was unchanged from 52.3% the prior year.

Austin moved in the opposite direction, with occupancy falling to 67.9% at the end of September from 73.7% a month earlier. Philadelphia, meanwhile, remained the lowest of the 10 markets tracked by Kastle at 42%, up from 39.5% at the end of August but below 42.6% during the comparable week a year earlier. Chicago was little changed at 56.7%, compared with 56.9% a month earlier and 57.3% a year earlier.

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Spring EQ consolidates Philadelphia offices as companies upgrade space

By Katie Burke CoStar News

Several years after calling its employees back to the office, a mortgage lending firm tired of being spread across several buildings is consolidating its Philadelphia headquarters under one roof.

Spring EQ took over an entire floor in the Cira Center office tower overlooking the Schuylkill River. The move enables it to let go of two separate leased spaces and bring its more than 250 employees in the area together at a single address.

The company is preparing to move into just shy of 27,000 square feet at the Brandywine Realty-owned building. The space is smaller than it had collectively occupied prior to the decision, but company executives believe it will be far more efficient in the aftermath of transitioning back to in-person work.

And even though the size of the new office will be smaller, the price tag is far higher — a worthwhile investment given that the 2929 Arch St. space is expected to help with productivity by having all of its sales, operations and technology teams side by side, said Spring EQ Chief Executive Joe Steffa.

The company, founded about a decade ago and acquired by private equity giant Cerberus Capital Management last year, has previously operated across several offices in Radnor and Conshohocken, Pennsylvania, as well as an outpost at 300 Fellowship Road in Mount Laurel, New Jersey.

Office rents in the South Jersey suburb average less than $26 per square foot, according to CoStar data. By comparison, premium office options in Center City Philadelphia have climbed to about $52 a square foot.

Since the acquisition, Spring's workforce has ballooned to more than 500 employees, most of whom are expected to commute to a physical office at least three days a week. And with access to Cira Centre features such as a media room, fitness center and a variety of different workspace types, Steffa said the firm expects the new headquarters to help with recruiting and retention.

It's a move other companies nationwide are making as they aim to beef up their attendance policies and attract the best talent.

While some of those decisions have meant downsizing their square footage, many have come with a larger investment in the space, as tenants prove willing to pay higher rents for better-quality options.

The flight-to-quality shift has been a critical ingredient in the national office market's post-pandemic recovery, separating the properties at the highest end of the quality spectrum from the less desirable alternatives still struggling with large blocks of vacant space. With almost no new construction moving through the country's development pipeline, tenants are also accelerating their real estate decisions as the pool of attractive, available options quickly shrinks.

As a result of that building competition, rents among trophy office properties have increased sharply over the past year. Philadelphia has some catching up to do compared to other top markets such as New York or San Francisco, and while rent growth has been challenged in recent years, top-tier buildings have captured the bulk of recent leasing activity and pushed record rates.

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Lehigh Valley's logistics market falls further out of step with national trends

 By Brenda Nguyen CoStar Analytics

Pennsylvania's Lehigh Valley is emerging as a logistics outlier, with increasing availability and reduced tenant demand setting it apart from Philadelphia and national trends.

The logistics availability rate for the Lehigh Valley reached 18.5% in the third quarter of 2026, up more than 12 percentage points from roughly 6% in late 2022. The current rate is well above Philadelphia's 10.9% availability rate and the national average of 10.7%. Although availability remains elevated across many industrial markets following a historic development wave, the Lehigh Valley's supply-demand imbalance has widened faster than in most other U.S. markets.

The disconnect reflects a recent surge in speculative development, projects built without any preleasing, followed by a pullback in demand. Developers have added a substantial number of speculative warehouse projects based on expectations that pandemic-era gains in consumer spending, e-commerce and supply chain expansion would continue. Instead, logistics tenants have slowed expansion plans, consolidated operations or delayed leasing decisions, leaving an overhang of unfilled warehouse space.

Lehigh Valley logistics facilities larger than 200,000 square feet recorded roughly one million square feet of negative absorption over the past year, meaning tenants vacated more space than they occupied.

While the Lehigh Valley has struggled to fill recently delivered logistics facilities, Philadelphia's logistics availability has closely tracked the national average and trended lower in 2026.

By comparison, neighboring Scranton recorded approximately 2.4 million square feet of positive absorption in logistics facilities. The contrast suggests regional demand has not disappeared but has become more selective, with some occupiers likely favoring lower-cost markets.

The Lehigh Valley's long-term logistics advantages remain intact, including its 'one-day' geographical proximity to major consumer markets, robust multi-modal infrastructure and cost efficiencies relative to coastal hubs. However, the current glut of excess inventory and reduced demand are likely to keep the market trailing Philadelphia and national industrial trends over the coming year.

Even so, continued speculative development suggests logistics developers are positioning for stronger tenant demand to return in 2027 and 2028, rather than responding to current market conditions.

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Penn Beer Sales & Service buys its own warehouse and adjacent land in suburban Philadelphia

 By Ryan Cashion

Penn Beer Sales & Service, a Hatfield, Pennsylvania-based wholesale distributor of alcoholic beverages, purchased the 324,796-square-foot manufacturing facility it fully occupies at 2801-2805 Township Line Road in Hatfield from Maguire Hayden Real Estate Co. for $48.5 million, or roughly $149 per square foot. The notable owner-user sale included both the industrial building and adjacent land parcels.

The industrial property was originally built in 1967, with renovations completed in 1998. Maguire Hayden had acquired the property in 2019 from S.S. Gretz Beverage for $27 million, or about $83 per square foot.

Gretz Beer Co. had sold its business operations to Penn Beer, one of the largest Anheuser-Busch wholesalers in the Northeast, while retaining the real estate until the sale to Maguire Hayden, a privately held real estate firm founded through a collaboration between Maguire Investment Management and Hayden Real Estate Investments. The firm is led by Tony Hayden, Jr. as principal and CEO.

Following the purchase, Penn Beer plans to build two additional warehouse-distribution centers on the 30-acre property. 

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Ethos breaks ground on larger of two warehouses planned near Reading, PA

By Vivian Peregrino CoStar Research

Ethos Development Group, a Pennsylvania-based industrial developer that partners with institutional investors to build warehouse and distribution facilities across the Northeast, has started construction on the first building planned in the Inner Loop Logistics Park.

Located at 181 Krick Lane in Reading, Pennsylvania, the 1,031,444-square-foot speculative industrial building is being built on a roughly 80-acre site in South Heidelberg Township along the Route 422 corridor west of Reading.

The first building, which Ethos is developing on a speculative basis without any tenant commitments, is expected to be completed by September 2027. The building will have 40-foot clear heights, 182 loading docks, four drive-in doors, and 649 auto parking spaces, along with solar-ready infrastructure and LED lighting.

A second, smaller building measuring 319,920 square feet is also planned on approximately 25 acres on the east side of Krick Lane, directly across from the first building, which would bring the park's total to roughly 1.35 million square feet. The logistics park is LERTA-approved, offering tenants up to 10 years of tax savings, and is situated along the Inner Loop connecting Interstate 83, Interstate 76, and Interstate 78/81.

Ethos Development was co-founded by Matt Nunn and Jim Groch. Nunn, who serves as president, previously spent nearly a decade as a partner at Trammell Crow Company, the nation's largest developer. Groch, Ethos' executive chairman, previously held senior executive roles at CBRE Group, including chief financial officer, global group president, and chief investment officer, from 2009 to 2020. The firm focuses on developing industrial distribution projects in high-barrier-to-entry markets throughout the Northeast.

The Reading-area industrial market encompasses roughly 66 million square feet of inventory. South Heidelberg Township has become a focal point for large-scale logistics development, with the Ethos project being one of the largest new additions to the submarket.

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Philadelphia’s bulk distribution market is working its way through supply overhang

 By Brenda Nguyen CoStar Analytics

Philadelphia’s bulk distribution market is showing renewed momentum after several years of elevated development and rising vacancy. While the vacancy rate for large warehouse properties is still above the national average, the local market has moved beyond the most challenging phase of the recent expansion cycle.

The local vacancy rate for distribution and warehouse properties larger than 200,000 square feet was 12.4% in the third quarter of 2026, compared with 9.6% nationally. However, with vacancy declining meaningfully over the past year, the market has finally moved beyond its peak vacancy and is seeing the return of stronger demand.

Over the past year, tenants moved into 9.3 million square feet of bulk distribution space, a sharp increase from 2.9 million square feet a year earlier. In fact, this year is on track to see the most bulk distribution space leased in Philadelphia since 2022.

The combination of increased tenant demand and shrinking availability has also supported rent growth.

Annual asking rents for distribution properties larger than 200,000 square feet increased by an average of 2.8% year over year in the third quarter, a notable improvement from the rent declines recorded throughout much of 2025. The return to positive territory suggests landlords are regaining some pricing power as fewer bulk distribution facilities remain available.

Additionally, development has declined by 55% year over year, reducing the number of new properties competing for tenants in the near term. With fewer speculative buildings, continued tenant demand should further reduce vacancy and support additional rent growth.

The combination of stronger tenant demand, return of rent increases, and a slowing construction pipeline are working to reduce excess availability and lay the groundwork for better-balanced conditions ahead.

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