Wells packing a punch in Class A office sector.

NORCROSS, Ga: Wells Real Estate Funds signed more than 1 million square feet in new and renewal leases in the year's first half, the Class-A office specialist reported.

Major deals this year for Wells, whose investment programs own more than 150 office and industrial buildings nationwide, include a 167,000-square-foot lease renewal for Polo Ralph Lauren in Lyndhurst, N.J.; a new lease of 152,000 square feet for Archon Group, an affiliate of Goldman Sachs, in suburban Dallas; and a 133,000-square-foot renewal for Countrywide Home Loans in metro Phoenix.

"Our investment focus is high-quality Class-A office properties, and we're seeing real strength in the office sector thus far in 2006," said Don Henry, managing director of asset management for Wells Real Estate Funds. "The economy is doing well, and top companies continue to need office space."

Wells seeks to diversify its office portfolios not only by geography, tenant and industry, but by lease terms--some of which currently stretch into the 2020s. With the office market heating up, "We're seeing tenants who want to go ahead and talk about renewals--fairly lengthy ones, in some cases," Henry said. For instance, Polo Ralph Lauren extended its lease with Wells in northern New Jersey through 2019.

Henry noted what he called a "tale of two cities" effect, with East Coast and West Coast office markets recovering well from the slowdown earlier this decade, while more central markets still lag somewhat, due in part to slower job formation. Still, the outlook for central cities such as Chicago is positive, and desirable properties in those cities should perform well as job creation takes hold, he said.

"Commercial real estate performance is really a function of supply and demand," Henry said. "Inflation in general--and the cost of construction materials in particular--has had a dampening effect on the supply of new office buildings. New job creation, particularly in the service sector, has been strong, and this is the principal driver of demand for office buildings.

"These supply-and-demand factors bode well for the office-building landlord."

Wells portfolios include more than 35 million square feet of space in 159 buildings, primarily Class-A office properties, geographically diversified across 28 states.