Investors Target Philly’s Hot Spots
Investors are finding that it isn’t always sunny in Philadelphia when it comes to identifying growth opportunities. The metro is a mixed bag of submarkets and neighborhoods that are thriving, while others are in decline.
Philadelphia is a former Rust Belt city that has been forced to move away from its reliance on its manufacturing roots and create a broader business base that can sustain economic development and growth. That transition has not been easy for Philly. Growth has been slower to materialize than some of its peers, and the city continues to battle problems that include higher levels of poverty, unemployment and blight in some areas.
Philadelphia Job Growth
Philadelphia has been notching steady job growth over the past several years, even if the pace of its gains is trailing behind that of other major metros. The city added 55,100 jobs between 2010-2017, according to the Center City District Foundation (CCDF). Yet the organization also describes job growth as “choppy” with education, health services and low-wage hospitality and retail jobs accounting for most of the growth. Expansion also has been concentrated in the Center City District, University City and fast-growing Navy Yard, while other areas of the city have seen a decline in jobs.
The Center City District has emerged as one of the hot spots for growth in the metro with $6.1 billion in development that was completed or underway in 2017, according to the CCDF. Center City has benefited from the shift to urban live-work-play lifestyles and a downtown that is both highly walkable and has a good transit system. Greater Center City is the fastest growing residential area of Philadelphia with 190,000 residents, 40% of whom also work downtown.
Philadelphia CRE Growth
Center City also has been a focal point for investors. According to Reonomy data, downtown commercial property sales have surpassed the $1 billion mark every year since 2014 with a high of $2.8 billion in 2017. Year-to-date transaction totals as of June are just shy of $1 billion. On the multifamily side, nearly half of the $495 million in sales throughout the metro area this year have taken place in the urban core.
Although office vacancies remain elevated, the Center City office market is seeing some positive development. Liberty Property Trust is developing Comcast Technology Center. The new 1.3 million sf tower is fully leased to Comcast and represents the largest development in the city’s history. PMC Property Group also is building 2400 Market, a 485,000 sf building that will be anchored by Aramark. At the other end of the spectrum, City Center has seen a rise in new start-ups and growing demand for creative office space with the epicenter for that activity occurring east of Broad Street.
Another area where Philly is experiencing success is in positioning itself as a destination for visitors and business conventions. Tourists are drawn to the numerous historical and entertainment attractions along with a growing foodie scene. In 2017, the Pennsylvania Convention Center hosted 21 conventions and trade shows (including the NFL Draft) that combined attracted more than 1 million attendees.
Those visitors have bolstered demand for hotels, entertainment and retail services. City Center hotel occupancy averaged a record high 78% in 2017, which has sparked a surge in new development with 11 new hotel projects underway or planned for downtown that will add 13,000 new rooms by 2021, according to the CCDF. Visitor traffic also is helping to support demand for retail and restaurants with 2 million sf of retail space that was underway at the end of 2017.
Just west of Center City, University City is another up-and-coming neighborhood thanks to strong academic anchors that include the University of Pennsylvania and Drexel University. A stretch of Market Street is undergoing a major transformation from what had been an underutilized office corridor into a 24-7 neighborhood that is home to students and young professionals. The 1,200-acre Navy Yard development emerging on the former Philadelphia Naval Shipyard along the Delaware River also is an emerging market. To date, the project has seen more than $1 billion in public/private investment.
The current city administration does want to expand growth to other neighborhoods and commercial corridors. In fact, the city has identified numerous Keystone Opportunity Zones. However, specific strategies and plans for revitalizing those zones are a work in progress, and in many cases, are not yet well-defined. As Philadelphia continues to reinvent itself and strengthen its business base investors are working to assess potential opportunities while being mindful of potential missteps and market risks.
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