Wednesday, July 31, 2024
Tuesday, July 30, 2024
Nonprofit Signs One of Philadelphia’s Largest Office Leases of the Year
By Katie Burke CoStar News
A Philadelphia nonprofit's move to renew and expand its lease, in one of the city's biggest office deals this year, underscores tenants' increasing willingness to invest in more space.
The Defender Association of Philadelphia, a provider of legal services for indigent criminal defendants, recommitted to about 117,000 square feet at the Packard building in Philadelphia's Center City. The renewal at 1441 Sansom St. also included the addition of about 21,000 square feet of former storage space that will be built out so the nonprofit can expand its longstanding footprint in the 26-story central business district tower.
The decision to invest in the additional space was prompted after years of steady growth across the defense organization's workforce. The firm has increased its staff by about 3% each year for the past decade and now employs upward of 500 people. The nonprofit's new lease now extends until 2040, according to CoStar data.
“We just can’t fit any more people,,” Defender Association First Assistant Sarah Allen said in a statement.
The renewal agreement is the second-largest office lease to be signed in the greater Philadelphia area since the beginning of the year, according to the data, a notable feat considering that many tenants across the country are still offloading large chunks of space in an effort to adjust to pandemic-era trends such as flexible work arrangements and a sharpened focus on curbing expenses.
Yet some landlords and developers — especially those behind newer and higher-quality properties — are reporting upticks in touring, demand and leasing momentum, signaling that the worst of the real estate cuts among tenants is in the rear view mirror.
Growing Confidence
An increasingly optimistic economic outlook, coupled with the solidification of companies' return-to-office strategies, means tenants are becoming more confident in signing on for longer and larger deals in a recent report.
Leasing volume through the second quarter of the year hit the highest three-month total since the onset of the pandemic. Tenants collectively signed about 50.2 million square feet worth of office deals through the quarter ended June 30, a 15% spike compared to the reported volume throughout the prior three-month period.
Second-quarter leasing totals represent nearly 90% of those reported prior to the pandemic, growth largely driven by a larger share of deals exceeding 100,000 square feet.
Tenant requirements for larger blocks of space has ticked up over the past year, with the number of large leases per quarter hitting its highest level in the second quarter of the year since 2022, nearly double the activity in early 2023.
And even though the nonprofit allows its employees to adhere to a hybrid work schedule, the Defender Association's Allen stressed the importance of maintaining a physical workspace — especially one so close to the Family Court of Philadelphia and the Criminal Justice Center.
“When you’re representing people who are incarcerated, you have to have the ability to be in an office space, to be able to use your computer, to be able to get to the prison, to be able to communicate with your clients,” Allen said. “The Defender Association is uniquely positioned just by the very nature of our work and having to go to court as often as our attorneys go to court.”
Friday, July 26, 2024
Thursday, July 25, 2024
Philadelphia REIT Rides Leasing Momentum as Competing Office Landlords Face Mounting Stress
By Katie Burke CoStar News
The scale between office tenant downsizings and expansions is tipping back toward some landlords' favor after several years of consolidation, said executives of one of the nation's largest real estate investment trusts.
Brandywine Realty Trust, a landlord and developer 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. The shift, CEO Jerry Sweeney said, has primarily benefited landlords on solid financial footing as tenants increasingly prioritize space in high-quality buildings owned by firms that aren't facing any type of distress.
"The quality curve thesis continues to gain strength as reflected in the overall pickup in leasing activity," Sweeney told analysts on the company's earnings call Wednesday. "Given some of the stress our competitive landlords are facing, we have in several submarkets seen our competitive set shrink and the quality, operating and financial stability of our platform has continued to separate us from the pack, both in the minds of prospective customers, existing tenants and brokers."
Even with the improving leasing landscape, however, Brandywine and other office landlords across the United States are still contending with a market in recovery mode.
Depressed leasing demand has plagued most office landlords throughout the United States for the past several years, with many pointing to the ongoing impact of remote work and the wobbly economic outlook for the challenges they face in getting their properties back to pre-COVID occupancy levels.
Still, "we continue to see encouraging signs on the leasing front," Sweeney said, adding tour activity remains above pre-pandemic levels by 27%. "Tenant expansions continue to outweigh tenant contractions during the quarter, and the total leasing pipeline continues in a strong position."
Building From The Bottom
Brandywine reported just shy of $30 million in net income for the second quarter, a significant improvement from the $12.9 million loss it posted for the same period last year.
The landlord leased nearly 165,000 square feet through the second quarter ended June 30, boosting its year-to-date total to more than 523,230 square feet. Brandywine's portfolio that includes roughly 70 properties that collectively span 12.7 million square feet is now about 88.5% leased.
What's more, nearly 70% of the new deals the landlord signed in the second quarter were a result of what Sweeney attributed to the "flight to quality" trend in which tenants have increasingly prioritized real estate investments in new and top-tier buildings located in the best neighborhoods.
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 205 million square feet since the beginning of 2020, according to CoStar data.
"Clearly we're still in a market that is over 20% vacancy," Sweeney said. "We're still competing against other product and sublease space."
Even so, the landlord is optimistic that the worst of the tenant offloading trend is behind it as companies return to their physical workspaces on an increasingly frequent basis.
"Companies want to bring tenants back to high quality space," the CEO said. "Part of the pipeline activity isn't necessarily what I would categorize as net new demand. I would indicate it as more shifting demand from lower- to higher-quality space, and I think we're very well positioned to take advantage of that."
