Liberty Property Trust is set to break ground on a 94,000-square-foot office building at the Navy Yard.

Liberty Property Trust is set to break ground Tuesday on a 94,000-square-foot office building at the Navy Yard designed by the architect behind Two World Trade Center, a plan that is among the developer's boldest bets yet on the sprawling business center.

The building at 1200 Intrepid Ave., fronting a five-acre park by the designer of the High Line in New York, would contain the most office space that Liberty has started at the South Philadelphia complex without a tenant in place.

The decision to begin work speculatively on the $35 million building, designed by Bjarke Ingels Group, is a signal of Liberty's confidence in the Navy Yard, where the company's 1.3 million square feet of office and light-industrial space are nearly 100 percent leased to companies from GlaxoSmithKline to Tasty Baking Co.

"It's not a good thing to have a customer walk into the store and you don't have anything to sell them," Liberty chairman, president, and CEO William Hankowsky said in an interview ahead of the groundbreaking. "We need product."

The move also continues the Malvern company's focus on big cities for office assets, a strategy shared by such competitors as Brandywine Realty Trust in Radnor and Chicago's Equity Commonwealth.

The 1,200-acre Navy Yard offers businesses the amenities of a suburban office park - open outdoor spaces, expansive horizontal floor plans - within Philadelphia's borders and near its cultural and entertainment offerings.

Tenants at the site, where 66,000 workers built and overhauled Navy warships during World War II, can earn tax credits by meeting job-creation or investment criteria.

Liberty, which developed Comcast Corp.'s headquarters tower and is now developing the cable giant's 59-story Comcast Innovation and Technology Center in Center City, was given the exclusive right to develop the Navy Yard in 2000 as long as it built 60,000 square feet there every two years.

The company, which has 13 projects built or under construction at the campus, has exceeded that threshold. Its last big speculative bet was in 2007, when it began work on the 95,000-square-foot 3 Crescent Dr. offices with only 35,000 square feet under contract, said Liberty vice president Brian Cohen, who manages the company's regional operations.

The company had considered moving the 25 staffers in its Philadelphia regional office from Center City to the Navy Yard, Cohen said, but has encountered too much demand to justify taking space itself.

Asking rents for Class A office space on the Navy Yard campus averaged about $36.84 per square foot in the first three months of 2015, compared with about $26.85 in Center City, said Lauren Gilchrist, Philadelphia research director at commercial real estate services firm Jones Lang LaSalle (JLL).

Though Liberty has no committed tenants for 1200 Intrepid, it is in talks with enough prospects to fill the new building more than four times over, Cohen said.

"Liberty has been quite successful with the Navy Yard," said Alexander Goldfarb, an analyst covering real estate investment trusts at Sandler O'Neill in New York. "They have the tax benefit over there, but it's also a nice campus area."

With 1200 Intrepid's completion, Liberty will have invested $300 million in the Navy Yard. That's as it pulls out of some suburbs and less populous cities.

A week before the scheduled groundbreaking, Liberty - which also has office holdings in such urban areas as Washington and South Florida - announced the sale of 22 properties in southeastern Virginia for $110.3 million.

Companies pursuing a similar tack include Brandywine Realty Trust, Philadelphia's biggest office landlord and the developer of chemicals giant FMC Corp.'s 49-story headquarters. It has been marketing properties in suburban Fort Washington and Horsham as part of its divestment strategy, JLL's Gilchrist said.

Meanwhile, Equity Commonwealth, which owns Philadelphia's BNY Mellon Center and the Chicago office building where Groupon maintains its headquarters, said earlier this year that it hoped to raise $2 billion to $3 billion, mostly through the sale of suburban office assets.

"It makes total sense to increase the bet on office space in the city," Gilchrist said. "They have seen an increase in demand for quality office space in areas that are in these live-work-play zones, close to millennials, close to a highly educated workforce."

Source: Philly.com