M id A tlantic Real Estate Journal — Brokerage Directory — July 2024 — 5A
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By Todd C. Monahan, Wolf Commercial Real Estate, LLC/CORFAC International Uncertainty Prevails in Office Market
T
he recessions of the early 1990s, follow- ing September 11,
134,000 s/f in 1601 Market, relocating to just 97,000 s/f in 1735 Market, a trophy build- ing with first-class amenities, including a private parking ga- rage. Baker Hostetler, another prominent law firm, relocated from the Cira Centre at 2929 Arch to 1735 Market, leasing just 45,000 s/f while vacating 80,000 s/f. Tenants continue to study their workplace strategies: How they work, where they work, how the office design supports the company, and how to attract and retain tal- ent. This analysis frequently
Many lenders have redlined the office sector, leaving own - ers with few options as their loans mature. In some cases, should the landlord wish to retain ownership, they are re- quired to put up more equity in order to refinance as the loan to value became untenable for the lender. If the Federal Reserve reduces interest rates later this year or in 2025, it will offer much needed relief. However, the uncertainty will likely remain due to the election and geopolitical pres- sures around the world. Pre - dicting interest rates at this
stage is a fool’s errand. Owners of obsolete office buildings or struggling assets are faced with turning the keys in to the lender as we’ve seen with Center Square at 1500 Market St., a 1.8 million s/f office complex in Center City. Other buildings, once vacant, have to determine their highest and best use, studying conversion opportu- nities and frequently selling at steep discounts. Todd C. Monahan is ex- ecutive VP & managing di- rector at WCRE | CORFAC International. MAREJ
results in less space, steadily increasing the vacancy rate in the market. Landlords cannot accurately predict for their in- vestors and lenders when cur- rent vacancies will be leased. Landlords and their lenders are operating in an extremely challenging environment as the dramatic rise in interest rates in 2023 left them with higher interest payments, or worse an inability to refinance alto - gether. Lenders want certainty, and landlords are challenged to predict when vacant space will lease, at what rental rate, and with what concessions.
and after the 2008 finan- cial crisis affected the office market in different and negative ways, but none com- pare to the
Todd Monahan
devastation caused by the CO- VID-19 pandemic. The ripple effects of hybrid work policies and corporate downsizing continue to negatively impact the office market, and no clear resolution is in sight. Although vacancy levels are at historic highs, it is not clear if the market has reached bottom. Many occupiers are market- ing their space as available for sublease. But when the lease expires, will the original ten- ant renew the lease and return to that office or simply give the keys back to the landlord? Some opportunistic tenants are capitalizing on the sub- lease market, leasing these spaces at steep discounts. However, many are downsiz- ing and vacating larger spaces in the process. Tenants that are committed to their office space are down - sizing and relocating to bet- ter buildings that offer more amenities. The flight to quality is real, leaving inferior and ob- solete buildings behind to deal with increasing vacancies. Examples in Center City Philadelphia include Fox Roth - schild’s 40% space reduction from 133,500 s/f in 2000 Market to 80,000 s/f across the street in Two Commerce Square at 2001 Market St. KPMG vacated
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