by Matthew Rothstein Bisnow
In both Downtown Philly and the suburbs, more new office space is on the horizon than has been in years. With some deep-pocketed tenants eyeing trophy-class space, some large blocks are due to open up in older Class-A buildings in the next couple of years, and the class of tenants that would replace them is growing, according to multiple Q3 research reports from real estate services firms.
For years, construction costs similar to those in New York have combined with far cheaper rental rates to make new construction an unrealistic proposition for the vast majority of office occupiers. But that lack of new construction has gradually applied pressure to the top of the market, and the upcoming run of expiring leases may finally be enough to burst it open.
“The aging office stock and a flight to quality from occupiers, in order to attract the best talent, are kind of coming together. So there’s a limited availability of this type of product in the region, which is driving rents to the point where some are considering new construction.”
A handful of large tenants have leases due to expire between 2021 and 2024, and at least some of them appear to be willing to pay the rent premium that comes from anchoring new construction.
Among those reportedly in the market for new construction are law firm Morgan Lewis & Bockius and insurance giant Chubb, each of which has been linked with one of the two new office buildings Parkway Corp. is planning in Market West.
Brandywine Realty Trust, whose FMC Tower is the most recent ground-up, multi-tenant office development, is also reportedly courting Chubb to anchor a 34-story office tower as the first new construction of its Schuylkill Yards megaproject. Farther west, One uCity Square could accommodate office as well as lab space.
In suburban submarkets like Conshohocken and King of Prussia, a similar dynamic is at play. Trophy-class office space is so scarce that tenants like AmeriHealth Caritas and AmerisourceBergen opted to lease an entire build-to-suit each.
AmeriHealth will take a five-story, 378K SF building in Equus Capital Partners' Ellis Preserve in Newtown Square, while AmerisourceBergen will have its 11-story, 429K SF corporate headquarters at Keystone Property Group's SORA West in Conshohocken.
One new construction opportunity remains: Brandywine Realty Trust's 100K SF building at 650 Park Ave. in King of Prussia, for which it has already demolished the older model that stood on the site.
None of the proposed downtown buildings seem likely to get underway until they secure a commitment for at least 50% of their office space, but in order to be ready for some of the major expiring leases, those commitments would need to solidify by the end of next year. Alternately, those tenants could negotiate short-term extensions with their current digs if a new home isn't ready.
Whenever those occupiers vacate for new digs, they will be leaving behind large blocks of space in Class-A buildings. But in recent years, those not-quite-trophy buildings have had few problems backfilling behind their major departures and densifying tenants with multiple smaller leases. FMC left behind 1735 Market St. in 2016 to anchor its own tower across the Schuylkill, and while the 1.3M SF tower could be considered trophy-class, it only has one 57K SF block of space still vacant today.
Across the street, 1700 Market St. has backfilled space Deloitte gave back in short order. “Not being trophy-class does not mean that these buildings are undesirable; they’re still Class-A and you’ll see companies looking to move into high-quality buildings. That really has been the story of Philly since 2000, with lower-quality office buildings being converted to multifamily or hospitality." Developers removing obsolete office stock by converting it has shortened the list of available blocks of space, kept vacancy rates healthy and helped to grow the residential population of vibrant Center City. What office space remains on the market has had good enough bones and location to remain Class-A properties through renovations and updates over the years.
"What has happened in the past 20 years is that the office stock has been improved. So it’s a bit of musical chairs when somebody leaves behind a space, but Philadelphia has proven to have strong demand long-term, and backfill the space left behind.” Among the most frequent occupiers to move into Class-A and not trophy buildings at the moment are the "Eds and Meds," Philly's economic engine. As research and medical space are such a precious commodity in University City, Drexel University and the University of Pennsylvania have moved some back-office functions to Center City.
Jefferson's voracious expansion included taking over the 1101 Market St. building Aramark left behind for 2400 Market St. Another likely backfill candidate in the next few years is coworking, multiple reports said. Though WeWork may no longer be in expansion mode overall, it recently took an additional floor at its under-construction location in East Market's 1100 Ludlow. Even without any further locations for the embattled industry leader, there are around 270K SF of coworking requirements in Philly.
Though some macroeconomic factors may be worrying for global markets, Philly looks like it is still playing to its slow-and-steady nature. In the past two years, job growth in the Philly metropolitan area has outpaced the rest of the top 25 cities in the U.S., Center City District reports — a reversal of decade-plus trends. The fact that new construction is even being realistically discussed at all in Philadelphia is a sign that its business community believes in its ability to expand and attract talent. Philly has been patiently setting itself up for new construction, and it seems ready. “Even though we’ve already seen significant densification, the fact that it hasn’t really affected vacancy speaks to the strength of the market,” Dominguez said.
www.omegare.com
Thursday, October 31, 2019
Wednesday, October 30, 2019
Friedman Signs Office Lease at Four Greentree Centre
Accounting, tax and business consulting firm Friedman LLP signed a 12-year lease for 20,985 square feet at Four Greentre Centre in Marlton, New Jersey.
The 62,069-square-foot, four-story building at 601 Route 73 North was completed in 1985. The Class A facility spans nearly four acres less than 14 miles from downtown Philadelphia.
Friedman’s lease includes the entire fourth floor and about 3,275 square feet on the third floor.
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The 62,069-square-foot, four-story building at 601 Route 73 North was completed in 1985. The Class A facility spans nearly four acres less than 14 miles from downtown Philadelphia.
Friedman’s lease includes the entire fourth floor and about 3,275 square feet on the third floor.
www.omegare.com
Logistics and Manufacturing Demand Fuels Harrisburg's Hot Industrial Market
Harrisburg's industrial market remained healthy through the third quarter, as sustained demand for logistics and manufacturing space kept vacancies tight, even as heavy levels of new supply arrived in market.
Occupancies are right at historic norms, even though over 2 million square feet of new supply arrived over the past 12 months. Harrisburg's prime location offers distributors easy access to major ports in Philadelphia and New York, and produces exceptionally strong demand for logistics space.
Smucker’s filled the most space in the third quarter, occupying close to 1.2 million square feet of space at 801 Centerville Road, a speculative facility completed earlier this year.
The market’s tight occupancies have enabled owners to see strong rent growth for several years in a row. Historically, the market has supported an annual increase of about 2%, but this figure has been surpassed for four years running, and year-over-year gains were over 4.5% at the end of third quarter.
Logistics properties are the market’s strongest performers. These assets have seen growth of over 5.5% in the past 12 months, and during the past four years, routinely eclipse all other industrial property types.
The strong growth continues to attract investor attention. Year-over-year volume at the end of the third quarter was close to $315 million, nearly double historic expectations. Several major deals finalized during this time, the most notable being the acquisition of 5500 Linglestown Road. The 88,000-square-foot facility sold in August to a private buyer for $4.8 million, or nearly $55 per square foot.
The fourth quarter is off to a strong start as well, thanks to the acquisition of a 55,000-square-foot warehouse on Fisher Street in Halifax, which closed in mid-October.
"Harrisburg is very attractive to industrial users in the logistics/distribution industries largely because of the infrastructure, which offers access to approximately 40% of the U.S population and 45% of the Canadian population in a day’s 11- hour truck drive."
"These factors are advantageous to users in manufacturing and specialized industries as well, who further benefit from the long-standing history of manufacturing in the area, availability of skilled labor and existing heavy-industrial properties that offer economical price points."
"We have a friendly tax structure, and within an hour can be on I-80, I-99, I-81, or the turnpike. A lot of demand is for the million-square-foot logistics centers, but we have more than enough demand for smaller specialized facilities, too. So much so that we are hard pressed to find space for tenants."
Harrisburg shows very little space available in specialized industrial assets, and with most construction accommodating the logistics sector, this will likely remain an owner’s market for the next few years.
www.omegare.com
PhilaPort Opens First Terminal in More Than 45 Years
by John Jordan Globest.com
Officials at PhilaPort officially opened the $110-million 155-acre Southport Auto Terminal and Vehicle Processing Center on Tuesday, the first new terminal at PhilaPort in more than 45 years.
Pennsylvania Gov. Tom Wolf along with the facilities operator Glovis America’s CEO and head of Americas of Hyundai Glovis JinWoo Jeong cut the ribbon marking completion of construction and the opening of the state-of-the-art facility on Tuesday.
Glovis America will process more than 200,000 Hyundai, Kia and other original equipment manufacturer vehicles this year at the processing center. “Pennsylvania needs a top tier Port facility to compete in global markets,” said Jeff Theobald, PhilaPort executive director and CEO. “This new facility the best of its kind on the East Coast.”
The new VPC at Southport is equipped with a state-of-the-art body shop including two car washes with two double prep stations and two joined double paint booths. The VPC at Southport is capable of servicing 200 cars per hour and fully processing more than 1,000 cars daily.
Many of the unique features of this site are not found in other Ports. Southport was built as one continuous facility, located directly adjacent to PhilaPort’s Pier 122—a dedicated auto berth. The layout allows autos to be discharged from the vessel and driven straight to the first point of rest, located on the same terminal, PhilaPort officials state. The facility is also the only one of its kind on the East Coast built above the 100-year floodplain. Southport is located at a unique nexus of deep-water and highways and is serviced by two class I railroads—CSX and NS—with additional service by CN.
Gov. Wolf said the terminal is projected to stimulate an estimated $124 million in economic activity, as well as create as many as 2,500 jobs.
www.omegare.com
Officials at PhilaPort officially opened the $110-million 155-acre Southport Auto Terminal and Vehicle Processing Center on Tuesday, the first new terminal at PhilaPort in more than 45 years.
Pennsylvania Gov. Tom Wolf along with the facilities operator Glovis America’s CEO and head of Americas of Hyundai Glovis JinWoo Jeong cut the ribbon marking completion of construction and the opening of the state-of-the-art facility on Tuesday.
Glovis America will process more than 200,000 Hyundai, Kia and other original equipment manufacturer vehicles this year at the processing center. “Pennsylvania needs a top tier Port facility to compete in global markets,” said Jeff Theobald, PhilaPort executive director and CEO. “This new facility the best of its kind on the East Coast.”
The new VPC at Southport is equipped with a state-of-the-art body shop including two car washes with two double prep stations and two joined double paint booths. The VPC at Southport is capable of servicing 200 cars per hour and fully processing more than 1,000 cars daily.
Many of the unique features of this site are not found in other Ports. Southport was built as one continuous facility, located directly adjacent to PhilaPort’s Pier 122—a dedicated auto berth. The layout allows autos to be discharged from the vessel and driven straight to the first point of rest, located on the same terminal, PhilaPort officials state. The facility is also the only one of its kind on the East Coast built above the 100-year floodplain. Southport is located at a unique nexus of deep-water and highways and is serviced by two class I railroads—CSX and NS—with additional service by CN.
Gov. Wolf said the terminal is projected to stimulate an estimated $124 million in economic activity, as well as create as many as 2,500 jobs.
www.omegare.com
Tuesday, October 29, 2019
Preleasing Kicks Off at The Station at Willow Grove Apartments
J.G. Petrucci Co. has revealed preleasing has begun for The Station at Willow Grove, a 275-unit luxury apartment complex in Willow Grove, Pennsylvania.
Move-ins for the mid-rise property at 91 York Road are slated to begin in December. The four-star complex includes a mix of studio, one- and two-bedroom units ranging from 544 to 1,224 square feet.
Named for the adjacent train station, The Station at Willow Grove aims to bring new life and energy to an urban area that is in need of high-end housing to support the recent influx of new business. The property, which was assembled with 11 properties to create a six-acre parcel, will also feature retail and office space for lease.
J.G. Petrucci Principal Greg Rogerson said in a statement, "At this point the covered parking garage is complete along with the pool, two courtyards and over half of the apartment homes. Our leasing team has seen incredible activity thus far and we look forward to moving residents into the community."
Founded in 1987, J.G. Petrucci has completed more than 600 design/build projects for a diverse group of local, regional and national corporations, according to its website.
www.omegare.com
Move-ins for the mid-rise property at 91 York Road are slated to begin in December. The four-star complex includes a mix of studio, one- and two-bedroom units ranging from 544 to 1,224 square feet.
Named for the adjacent train station, The Station at Willow Grove aims to bring new life and energy to an urban area that is in need of high-end housing to support the recent influx of new business. The property, which was assembled with 11 properties to create a six-acre parcel, will also feature retail and office space for lease.
J.G. Petrucci Principal Greg Rogerson said in a statement, "At this point the covered parking garage is complete along with the pool, two courtyards and over half of the apartment homes. Our leasing team has seen incredible activity thus far and we look forward to moving residents into the community."
Founded in 1987, J.G. Petrucci has completed more than 600 design/build projects for a diverse group of local, regional and national corporations, according to its website.
www.omegare.com
Philadelphia's Horsham/Willow Grove Suburb Readies for Wave of New Apartment Units
Philadelphia's Horsham/Willow Grove suburb has hosted very little new apartment construction over the past two decades.
Developers have generally focused their attention in and around Center City, as well as in Philadelphia’s western suburbs, which include the metropolitan area’s largest center of suburban white collar employment.
While corporate expansions are much more common along Philadelphia’s Main Line suburbs to the west of the city than they are in the northern suburbs, Horsham/Willow Grove still has a large base of high-paying employers including Prudential, Toll Brothers and Penn Mutual Life Insurance.
Solid apartment demand drivers combined with minimal new construction has produced rent growth averaging 3.9% annually over the past 36 months, which has given developers the confidence to build.
There were nearly 1,000 apartment units under construction at the start of the fourth quarter. Most new construction is contained in the Promenade at Upper Dublin, a highly amenitized property that will contain 400 units and more than 100,000 square feet of planned retail space. While this is the submarket’s largest supply wave in a generation, there are reasons to believe demand is strong enough to quickly absorb the new units.
In total, the submarket contains about 12 million square feet of occupied office space, which based on a simple usage factor of 200 square feet per worker, holds about 60,000 office workers.
The submarket also supports its own respectable live/work/play scene.
Horsham and Willow Grove also have grocery stores, shopping malls and a strong road network with the turnpike and Route 309 nearby.
The new supply is also well positioned to capitalize on the submarket’s strengths. The Promenade at Upper Dublin is rising just one block from the Horsham Gate Shopping Center, which contains a Fresh Market grocer, and is adjacent to a Walmart, Sam’s Club, Petsmart and a range of restaurants.
The Station at Willow Grove is set to begin move-ins during December, and lists one-bedroom rents ranging from $1,300 per month for studio apartments to $2,150 per month for 969-square-foot units. The 175-unit project is across the street from the Willow Grove station on the SEPTA Warminster Line and less than a mile from the Willow Grove Mall.
Vacancies and free rent discounts are likely to rise temporarily among the area’s existing stock of amenitized apartment properties, as long-time owners compete with these new projects for tenants. The Station at Willow Grove is offering to waive December rent for tenants moving in during the first month of the project’s opening.
Nonetheless Horsham/Willow Grove is long overdue for more high end rental options and if the project’s lease up successfully, institutional investors who previously had not considered this submarket will likely begin eyeing the opportunity to add some of these new properties to their portfolios.
www.omegare.com
Developers have generally focused their attention in and around Center City, as well as in Philadelphia’s western suburbs, which include the metropolitan area’s largest center of suburban white collar employment.
While corporate expansions are much more common along Philadelphia’s Main Line suburbs to the west of the city than they are in the northern suburbs, Horsham/Willow Grove still has a large base of high-paying employers including Prudential, Toll Brothers and Penn Mutual Life Insurance.
Solid apartment demand drivers combined with minimal new construction has produced rent growth averaging 3.9% annually over the past 36 months, which has given developers the confidence to build.
There were nearly 1,000 apartment units under construction at the start of the fourth quarter. Most new construction is contained in the Promenade at Upper Dublin, a highly amenitized property that will contain 400 units and more than 100,000 square feet of planned retail space. While this is the submarket’s largest supply wave in a generation, there are reasons to believe demand is strong enough to quickly absorb the new units.
In total, the submarket contains about 12 million square feet of occupied office space, which based on a simple usage factor of 200 square feet per worker, holds about 60,000 office workers.
The submarket also supports its own respectable live/work/play scene.
Horsham and Willow Grove also have grocery stores, shopping malls and a strong road network with the turnpike and Route 309 nearby.
The new supply is also well positioned to capitalize on the submarket’s strengths. The Promenade at Upper Dublin is rising just one block from the Horsham Gate Shopping Center, which contains a Fresh Market grocer, and is adjacent to a Walmart, Sam’s Club, Petsmart and a range of restaurants.
The Station at Willow Grove is set to begin move-ins during December, and lists one-bedroom rents ranging from $1,300 per month for studio apartments to $2,150 per month for 969-square-foot units. The 175-unit project is across the street from the Willow Grove station on the SEPTA Warminster Line and less than a mile from the Willow Grove Mall.
Vacancies and free rent discounts are likely to rise temporarily among the area’s existing stock of amenitized apartment properties, as long-time owners compete with these new projects for tenants. The Station at Willow Grove is offering to waive December rent for tenants moving in during the first month of the project’s opening.
Nonetheless Horsham/Willow Grove is long overdue for more high end rental options and if the project’s lease up successfully, institutional investors who previously had not considered this submarket will likely begin eyeing the opportunity to add some of these new properties to their portfolios.
www.omegare.com
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