Suburban office parks now have millions of square feet of new vacant offices — enough to fill more than 2 Comcast Centers
As employees go remote, suburban Philly office buildings could be repurposed or torn down. Companies are “getting rid of overhead,” said one township manager.
When real estate investors Zach Moore and Tony Grelli toured the hushed offices of the former 1,000-employee Nationwide insurance complex in Harleysville last month, lights turned on as they passed rows of empty desks.
Moore gestured to some of the $2 million of abandoned office furniture, including hundreds of ergonomic chairs (retail value $800 each) and blond-wood desks. Stacks of colorful trash receptacles lined courtyard windows. He and Grelli can’t sell the stuff because a glut of used office furniture after COVID-19 has saturated the resale market. They’ll pay a hauler $150,000 to take it away.
“One day, 50 years from now,” Moore said later, “I will tell people you could buy an office building for the same price as an old manufacturing building because there was a global pandemic that sent everyone home, and they won’t believe it.”
The Nationwide complex closed in 2020, most of its employees permanently assigned to work remotely after the COVID lockdown. Moore and Grelli closed a deal last week to buy the building, with ambitious plans to revitalize the space.
“There has been recognition that the old way of working is going to change.”
Almost a quarter of the vast Pennsylvania suburban office market is vacant, says the commercial real estate firm CBRE, with more than one million square feet in the Pennsylvania suburbs emptied this year so far. Since early 2020, the amount of vacated space totals three million square feet — the equivalent of more than two Comcast Center towers.
Acres of asphalt make up much of today’s suburban scenery, as parking lots sit empty.
‘Fifth inning of a nine-inning game’
Attention has been paid to the post-COVID health of downtown Philly office towers, but the Pennsylvania suburban office market is larger — bigger than the metro office markets of Salt Lake City, Kansas City, Charlotte, or Tampa — and its vacancy rate is substantially higher.
Unlike urban centers, suburban offices may face stiffer challenges in a post-pandemic recovery, experts say. Many of the buildings are older and unpopular in the tight labor market with corporate bosses and younger employees seeking amenities.
Townships that banked their economies on white-collar workforces and office parks will face public policy questions over how, or whether, to redevelop office buildings for apartments or homes, distribution centers or industrial sites.
Building economics also radically changed. Amazon and other online shopping, in addition to a modest resurgence in U.S. manufacturing because of a glitchy global supply chain, has placed more demand on distribution centers and industrial buildings.
Top-of-the-line, or trophy, office buildings with gyms and cafeterias and open spaces still draw tenants, said Scott Miller, executive vice president at CBRE. But suburban office buildings constructed between the 1970s and early 1990s, with fewer amenities, might not.
“We are in the fifth inning of a nine-inning game. There has been recognition that the old way of working is going to change,” Miller said of the restructuring underway in suburban office space.
In North Jersey, “office buildings are being demolished and industrial buildings are being [built] back in their place,” Miller said. “Well-located sites with office buildings at the end of their useful life are better off being repurposed.”
Nationally, Comcast put hundreds of square feet of office space on the market for lease. The entertainment and telecom giant would not say how much will be available for sublease in the Philadelphia area. “With increased remote and hybrid working, the facilities needs of our business have evolved, and our teammates are utilizing office space differently than in the past,” company spokesperson John Demming said in an email.
“In many of these townships, the big question mark revolves around future tax revenue,” Miller said. “There is a potential for higher taxes on the properties but also one for lower taxes.”
‘People will want shorter commutes’
CBRE breaks the Pennsylvania suburban office markets into 15 smaller areas such as Exton/West Chester, Main Line, or Delaware County. Since the COVID lockdown, two areas did well: Fort Washington and Jenkintown. Their vacancy rates fell between early 2020 and 2022.
Other suburban office markets saw vacancy creep up three to five percentage points. Others didn’t do well at all, according to CBRE. Those with some of the highest vacancy jumps: King of Prussia, Plymouth Meeting, North Penn, and Willow Grove/Horsham.
Larry Burns, the director of community and economic development in Horsham, calls himself “the face of business in Horsham.”
Horsham, a 17-square-mile township located off the Pennsylvania Turnpike and Route 611, has millions of square feet of office space, a lot of it occupied, but also a lot vacant. CBRE says the office vacancy rate almost tripled in the Willow Grove/Horsham area between early 2020 and now. Now, it’s almost 36%.
Decades ago, Horsham zoned big parts of the town for offices. “They wanted jobs here,” Burns said. And jobs came, now about 30,000, as developers constructed office parks: the Babylon Business Campus, Commonwealth Corporate Center, Keith Valley Business Center, Horsham Business Center, and the Pennsylvania Business Campus.
Even before the pandemic, Horsham spiffed up those office parks with sidewalks and lighting. The township spent $17 million to modernize, Burns said, and approved restaurants and apartments, creating mixed-use areas.
Janssen Pharmaceuticals, a division of Johnson & Johnson, has proposed a new building, its third, Burns said. Myonex, a clinical trial supply company, located its headquarters in Horsham in 2021.
But the area also has a vacant call center and empty lots. The former Toll Brothers headquarters on Gibraltar Road, built in 1984 and renovated in 2004, has parking for 974 cars — all empty. Valued at $32 million, based on its tax assessment, the property sold at sheriff’s sale and changed hands in early 2021 for $4.5 million, according to documents at the Montgomery County Recorder of Deeds.
Toll Brothers moved to Fort Washington. “The investment went into Fort Washington 10 years ago, and they have taken some of our lunch,” Burns said.
But Burns remains optimistic that the broader office market will shift back to suburban.
Because of lifestyle choices and student debt, millennials put off marriage and home-buying, Burns believes. They lived in Philadelphia longer than many expected. He thinks they will come back to the suburbs to raise families and for the schools. When they do, Horsham has office space for them.
“I don’t think SEPTA and the Regional Rail is coming back,” Burns said. “People will be looking for shorter commutes.”
‘Getting rid of overhead’
Lower Salford Township is a Montgomery County community of 16,000, close to an exit on Route 476 and near the huge Merck campus in West Point. Harleysville is part of it.
The Harleysville Group Inc. was a homegrown insurance firm with its headquarters and office complex in a suburban neighborhood, bringing architectural grandeur to Maple Avenue.
Ohio-based Nationwide Mutual Insurance Co. bought Harleysville Group, which owned the Harleysville Mutual Insurance Co., for $834 million in 2012. The following year, Nationwide began a $20 million renovation, replacing the HVAC system and office furniture, putting in new lighting, solar, and spruced up the courtyard.
But after COVID hit in 2020, Nationwide announced it would close Harleysville and other U.S. offices, transitioning about 4,000 employees to permanent work-from-home status.
Lower Salford manager Joseph S. Czajkowski said that companies are “getting rid of overhead. These companies are figuring out that these employees don’t need to sit under our roof. They could sit under their own roof.”
Nationwide and Almac, a drug-development company, are Harleysville’s largest employers. When the Nationwide office complex shut down, people worried about what to do with the building and land.
“The township really did not have any interest in rezoning [the Nationwide complex] for residential,” Czajkowski said. “You need to have well-balanced zoning so that costs are not just borne by residents”
Real estate investor Moore, 28, was raised in Harleysville. He learned how to drive and parallel-park in the insurance firm’s parking lot. He met Grelli, 29, at Drexel University, and they graduated in 2017. They cofounded the Velocity Venture Partners firm, which buys, repurposes, and manages six million square feet of mostly industrial buildings.
Grelli describes some of these buildings as “walking dead,” with collapsed ceiling tiles, pitted concrete floors, and worn-out equipment. The idea is to bring the buildings back to life with new jobs. Distribution centers have been a popular reuse. Aluminum Shapes, a big Pennsauken manufacturer that filed for bankruptcy protection under Chinese ownership, was one of their projects. Velocity has recruited new aluminum companies to restart operations.
‘It’s like they were here one day and ...’
With Philly-area industrial buildings picked over, Moore and Grelli have turned their attention to vacant office buildings — now available at reasonable prices, they say.
In Harleysville, Velocity plans to convert the roughly 250,000-square-foot Nationwide complex into a light-manufacturing, distribution, research, and product development site, leasing it out to tenants. Velocity will roof over a courtyard for additional space and take out part of the second floor to create higher ceilings.
Czajkowski said 30% of the space will be for light industrial and related warehousing and the remainder for a brew pub and biomedical, drug or health-care firms.
“We didn’t want it to become a warehouse or a giant industrial site,” Czajkowski said.
Velocity is buying the complex for $18.5 million, Moore said, and will put about $8 million into converting it. He believes he can find tenants in the aerospace, product development, and pharmaceutical industries, thanks, in part, to the widening of I-476.
A sign in the lobby dated Oct. 7, 2020, contains COVID protocols, evidence of the final days at the Harleysville complex. Included inside was a cafeteria kitchen with shiny cooking surfaces and hanging metal stirring spoons and other utensils. Unlike the used office furniture, Grelli believed they can sell the kitchenware.
Moore was excited last Monday after the closing. The Harleysville project will be transformational for Velocity, he said, as he anticipates a “massive, massive redevelopment market for office buildings.”