As the commercial real estate market continues to crumble before the eyes of market participants who have been employing every trick in the book to put a rosier polish on their marks for one more quarter, obvious examples of a disappearing bid for office space continue to pop up.
The latest was in Philadelphia, according to the Philadelphia Business Journal, where developer Ori Feibush is now claiming the CRE market “has presented the best real estate opportunities we've seen in our professional lives.”
He just purchased a 30% occupied building in Philadelphia's Old City section and says he's going to keep it for office use.
PBJ reports that Feibush acquired the 136,000-square-foot building at 399 Market St. from Colonial Penn Life Insurance for $14 million. This price is 38% lower than its assessed value of $22.6 million. He estimates that the building would have been valued at around $40 million before the office market downturn in 2020.
He said: “It's atypical for us to buy office, but that is where the greatest opportunity is, because there's obviously a lot of duress and noise in the market. We jumped on the opportunity to buy something at a huge discount to what it would have traded for just a few years ago.”
“We’re the least expensive Class B building in Philadelphia,” he added.
Over the past four months, the occupancy rate at a building under contract has increased to 45% due to new leases.
The building, which predominantly houses tenants requiring 3,000 to 14,000 square feet, sits in a market where office vacancies in Philadelphia hit 19.6% in the first quarter. This trend reflects a broader move towards downsizing office space by 20% to 40%, affecting older buildings' values across the city and nation.
Purchased at a discount, 399 Market St. now offers rents ranging from the low- to mid-$20 per square foot, below the first quarter's average of $29 for Class B office spaces.
The building's tenants include a TD Bank branch, several nonprofits, an architectural firm, a logistics firm, and a new national daycare center. It also features a 72-space underground parking garage and is positioned in a prime Old City location that could attract more tenants seeking moderately sized spaces.
“It’s just the perfect time to buy office. I suspect any real estate professional who is not jumping into the office world is going to be kicking themselves in a couple years," Feibush told Philadelphia Business Journal.
Feibush concluded: “There's no explanation for why discounts of office rents of 20-25% is creating an environment where office is trading at 70-75% less than it was just a few years ago. There is fear in the market, and that has created exceptional opportunities.”
There may be some reason...
