PHILADELPHIA, PA—(SBN)—Philadelphia’s office markets are looking strong, both in the Center City business district and in the still-congested western suburbs, according to members of the Industry Leaders Panel at the ALM Media RealShare Philadelphia conference held last Wednesday at the historic Union League Club in Philadelphia. SBN’s news director, Steve Lubetkin, covered the conference in his role as Philadelphia correspondent for GlobeSt.com, ALM’s website covering commercial real estate markets.
SBN also produced video and audio podcasts from the conference, which are being sold through the online store operated by SBN’s parent, The Lubetkin Media Companies LLC.
Participating in the Industry Leaders panel were: Bradley J. Korman, co-chief executive officer, Korman Communities, Inc.; Arthur P. Pasquarella, executive vice president and chief operating officer, Equus Capital Partners, Ltd.; Chip Walters, chief investment officer, Keystone Property Group; and Robert W. Walters, executive managing director, CBRE.
Nationally, office rents are up about five percent and central business district vacancy is down about 50 basis points to 11.5 percent, says Chip Walters of Keystone Property Group. In Philadelphia, the Center City office market absorbed about 900,000 square feet of vacancies on a base of 43 million square feet, he says. The suburbs absorbed a comparable amount (800,000 square feet on 43 million square feet in suburban space).
There is a marked difference, however, in the types of offices that dominate the market, he says. “Pre-2008, the focus was on FIRE – financials, insurance, real estate,” he says. “Now it’s eds, beds, meds – educational facilities, hotels, and healthcare.” Energy and technology are also part of the new economy, he says.
Tenants continue to look for efficient floor plates, with open communal spaces intended to foster collaboration taking the place of personal offices or cubicles. “Gone are the file rooms and libraries,” Walters says.
Suburban markets that were big winners in office activity last year included Conshohocken, King of Prussia, Radnor, and Bala Cynwyd, Walters says. This is mainly because the office stock in those areas is better and these markets remain close to where people want to “live, work, play,” he says.
Technology companies in Philadelphia’s western suburbs continue to be challenged in staffing their jobs, according to Robert Walters of CBRE. Close to 60 percent of the technology jobs in the market are in the Route 202 corridor ranging across the Pennsylvania Turnpike to Plymouth Meeting in Montgomery County, northwest of Philadelphia, he says. At the same time, Chester and Montgomery Counties only have 7/10 of a person for every tech job, while in Philadelphia, there are 1.7 people for every tech job.
“If you look a little bit closer, you’ll see over the last four years that Philadelphia proper has grown by about 30 percent from a tech job standpoiont,” Walters says. “Chester and Montgomery Counties have grown 10-11 percent. New Jersey has actually lost jobs, about two percent.”
Demographics and the reurbanization trend have something to do with the numbers, Walters says, noting that companies coming into Center City include tech startups and other more mature firms, and the influx is stimulating conversion activity involving lofts and warehouse buildings in the Midtown Village and North Third Street neighborhoods. (Walters jokingly referred to North Third Street as “Nerd Street” because of the concentration of technology startups there.)
There has been a broad scale increase in demand nationally, but capital is still “very much restrained from new development,” says Pasquarella. “It’s still very muted from any kind of historical context that we’ve been used to. Cap rates are coming down. The entire capital stack is under pressure.”
In the multifamily space, the strongest renters are millennials and empty nesters, says Korman. “They are looking for flexibility,” he says of millennials. “Their American dream is not buying a house and living there for 30 years. They also look at the opportunity to have the best amenities. It used to be you had to have stainless and granite to compete. Now it’s hardwood and it’s real technology, speed and capacity. We’re on to pools and golf simulators, things people would love to have in their homes but can’t afford, in a community of 300 units, we can afford to add those.”
More than 300 market participants attended the four RealShare panels on different aspects of the commercial real estate industry.
Video and audio podcast programs of the RealShare Philadelphia Conference are available for purchase as instant downloads. You can purchase video recordings of the conference at this link.