Market Reports

Philadelphia Rent & Occupancy Graph 2020

Philadelphia’s New Brand Identity in Commercial Real Estate

by Sarah Daniels February 26, 2020

Interest in Philadelphia among commercial real estate investors has been on the rise for years. But the Eastern Pennsylvania market managed to maintain a relatively low profile in the public consciousness, overshadowed by its larger East Coast primary market rivals, each with its own clear brand identity. But this is largely a thing of the past. Philadelphia has emerged lately as a leader in cutting-edge biotech and life science innovation. The city is a magnet for gene and cell-level therapy entrepreneurs, a status that is rapidly evolving into a distinct brand. Billions in venture capital and real estate investment have followed, elevating the Athens of America to the top rank of U.S. competitors for global investment cash. The multifamily sector is a chief beneficiary of the trend. Fueled by strong demand for luxury space, builders ratcheted apartment development higher over the past 10 years, raising construction starts from about 4,000 units per year at mid-decade to 6,000 annually since 2017. Currently, there are about 8,000 multifamily units under construction, and the pace isn’t likely to slow much this year. The magnitude of the supply surge is anticipated with a degree of trepidation in some quarters. Philadelphia renters have never absorbed …

February 26, 2020

New Jersey Northeast Northeast Market Reports Pennsylvania Retail

Philadelphia Retail Market Embraces Change in ’20s

by Alex Patton February 25, 2020

As our economy fades out of one decade and cruises into the next, a look in the rearview mirror reveals more than 10 years of expansion and 10-year GDP growth in excess of 26 percent. Sean Beuche, Marcus & Millichap The Philadelphia and Northeastern retail investment sales markets should be both thankful for progress made and road bumps navigated and mindful of several current trends affecting transactions and challenges looming on the horizon for owners and tenants of single and multi-tenant retail assets alike. Savvy Investors enter 2020 with the wind at their backs in many respects while also facing some familiar and unconventional challenges ahead. The 3.7 percent unemployment remains near a 50-year low, meaning that consumers are gainfully employed with money to spend. Mixed-use developments that capture the live-work-play lifestyle are ubiquitous and keep placemaking everywhere they spring up. Millennials and baby boomers alike are demanding walkable communities and opportunities to spend more of their money closer to home via dining out, signing up for memberships at gyms and fitness centers. Both these groups are enjoying the experiential retail that every landlord desires in their centers and portfolios. Stocks of publicly traded retailers like Target, Walmart, and Home …

February 25, 2020

Market Reports Massachusetts New York Northeast Northeast Market Reports Office Pennsylvania

Developers Adapt to Tight Office Market in Northeast

by Taylor Williams December 4, 2019

Office vacancies are falling across the big metros of the Northeast as robust user demand outpaces the supply of new construction. Deliveries in the last year have primarily been limited to Class A, build-to-suit properties and mixed-use developments. Meanwhile, office tenants are seeking high-end amenities at favorable prices. Nationally, the office vacancy rate stood at 16.8 percent in the second quarter, up slightly from 16.6 percent a year ago, according to real estate research firm Reis. Net absorption for the quarter totaled 3.2 million square feet, down from 3.9 million square feet a year ago. The average asking rent was $33.79 per square foot, up 2.2 percent on a year-over-year basis. Approximately 11.1 million square feet of office space was under construction at the end of the second quarter across Philadelphia, New York and Boston, according to CoStar Group. Helped by approximately 8.3 million square feet of absorption in the second quarter, the average vacancy rate across all three markets was 8.1 percent. Rather than undertake costly new ground-up construction projects, many developers are choosing to redevelop existing assets and efficiently incorporate office space into mixed-use projects. Coworking tenants occupied 54.2 million square feet of office space nationally at the …

December 4, 2019

Market Reports Northeast Northeast Market Reports Pennsylvania Retail

Experiential Retail Takes Philly by Storm

by Taylor Williams September 25, 2019

The evolution and transformation of Philadelphia’s retail real estate market is in full swing, as evidenced by the arrival of several long-awaited shopping and dining concepts, the growth of retail in mixed-use settings and the balanced levels of demand between urban and suburban submarkets. According to the latest data from CoStar Group, over the last three years the Philadelphia metro area’s retail inventory has grown by about 1.3 million square feet per year. The development pipeline is leveling off, with less than 700,000 square feet of retail product currently under construction, and steady demand has pushed the market’s vacancy rate down to 4.2 percent. While the quantity of annual new space added has been on par with the national average for primary markets, the quality of that space and the fundamentals that drive demand for it have made Philadelphia a key market for expanding and new-to-market retailers. “Philadelphia is a market with many millennials and college students, a dense residential downtown area and a thriving tourism industry,” says Doug Green, managing principal at brokerage firm MSC Retail. “If you’re Bonobos, Warby Parker or Untuckit, Philadelphia is going to be one of your stops, because we check all the boxes that …

September 25, 2019

Market Reports Northeast Northeast Market Reports Office Pennsylvania

Strong Demand, Record Rents Drive Office Investment, Development in Philadelphia

by Taylor Williams September 11, 2019

Robust employment and population growth are fueling Philadelphia’s renaissance and propelling the region’s office sector to new heights. The lack of new office construction over the past decade has driven rents to record levels and is creating value-add acquisition opportunities throughout the region. With a tight labor market and talent acquisition at a premium, companies want to lease state-of-the-art workspaces that attract future employees. Key features of these spaces include access to public transit and surrounding retail and restaurant options. Limited availabilities within this product type are driving rents for quality space, as well as the development pipeline for new office buildings. However, after years of little construction, several proposed office buildings in both downtown and the suburbs are close to breaking ground and creating the next crop of new office inventory for the region. Record Rents In the second quarter of 2019, average asking rents for office properties in downtown Philadelphia hit a record $31.33 per square foot, a 20 percent increase over the past five years. This growth has been driven by out-of-town investors acquiring buildings and raising rents, as well as by growing demand for downtown office space, both from new in-bound demand and organic growth from …

September 11, 2019

Market Reports Multifamily Northeast Northeast Market Reports Pennsylvania

Philadelphia’s Multifamily Market Can Withstand A Broader Economic Downturn

by Taylor Williams September 4, 2019

As we look toward the end of 2019, multifamily investment sales and mortgage banking transactions in the greater Philadelphia market are at an all-time high. For lifelong Philadelphians, it’s exciting to witness the area’s longstanding foundation successfully take shape through numerous real estate projects in the city and its suburbs. The Philadelphia multifamily market continues to capture interest from a variety of capital sources. Berkadia’s Philadelphia team alone has $4.3 billion in firm or funded transactions from January through August of this year. Specifically, institutional investors have demonstrated an increased interest in this market, as both national and international players continue to recognize the area’s relative value and sound fundamentals. We expect these trends to continue throughout the remainder of 2019 and into next year, regardless of any major headwinds at the macro-economic level. The driving forces behind Philadelphia’s success include a robust volume of new Class A developments, a more tactful approach to value-add deals, marketplace efficiencies and most of all, a continued demand for multifamily product. The market’s new Class A properties have been well-received in terms of leasing velocity. More construction capital is available than in years past; top-of-the-market rent discovery has generally proven out. In addition, …

September 4, 2019

Industrial Market Reports Northeast Northeast Market Reports Pennsylvania

Philadelphia’s Industrial Market Is Ready for More Speculative Development

by Taylor Williams August 28, 2019

Demand for industrial space in Philadelphia and suburban Pennsylvania counties has been strong over the last five years. The last meaningful wave of speculative construction occurred in 2002. Couple that with the fact that much of the area’s industrial inventory was built prior to 1980, and we have a market that is ready to absorb a rising volume of speculative product. Organic growth and new-to-market requirements have absorbed most of the quality supply, leaving inventory that is at 40 to 50 years old and functionally obsolete for many requirements of today’s e-commerce users. Activity has been slower in the year’s first six months as companies have been more cautious about planning for future growth. Another factor has been the lack of quality-space options, with less than 1 percent of the inventory considered institutional, Class A space. This dearth of quality space is reflected in the single-digit vacancies. Developers, tenants and brokers will be watching closely as over 5 million square feet of speculative industrial space is projected to deliver in the next 12 to 24 months. Strong Urban Demand There is pent-up demand from local warehouse and manufacturing companies as well as increasing demand from third-party logistics (3PLs) users, food …

August 28, 2019

Market Reports Multifamily Northeast Northeast Market Reports Pennsylvania

All of a Sudden, Pittsburgh Multifamily Trades Increase in Velocity

by Taylor Williams July 3, 2019

After a brief increase in the overall vacancy rate in the Pittsburgh region in 2017, the market has rebounded nicely and is back in the 4 to 5 percent range. But what has been more eye-opening is the increased velocity in the acquisition market that has investors from outside of Pittsburgh more focused on the Western Pennsylvania market than ever before. Multifamily Sales Market Multifamily sales in the Pittsburgh region over the last 10 years have been rather anemic. Sales velocity was slow due to various factors, including the reluctance of long-time local ownership groups to sell a property in a market where few options existed for a 1031 tax-deferred exchange transaction. There was also very little new construction to attract outside capital. In general, not much attention was paid to the Pittsburgh metro. However, developers recently had an epiphany and noticed that there was much old multifamily product scattered throughout the region, and that the time was right to break ground on new projects. Now that a significant amount of new construction projects have been delivered over the last six or so years, Pittsburgh has become a target for many investment firms from outside Western Pennsylvania. Some of the …

July 3, 2019

Industrial Market Reports Northeast Northeast Market Reports Pennsylvania

Attention Industrial Investors: Here’s Why You Should Consider Pittsburgh

by Taylor Williams June 26, 2019

Industrial properties have experienced unprecedented growth in demand over the past several years as both new and old companies seek to find space. This shift has benefited industrial assets in many metros across the country, although investors may unintentionally limit their focus to the markets with the most outsized gains. Smaller cities can provide equally compelling investment opportunities due to some unique advantages. Multiple factors combine to create such a scenario in Pittsburgh. The city is home to several prominent educational institutions, healthcare providers and technology companies that are fueling job growth, thus dropping the unemployment rate to its lowest in two decades. Opportunities in these high-wage industries are bolstering the metro’s median household income and improving retail sales. Consumer spending is projected to jump 4.4 percent in 2019, about 100 basis points more than last year. As shopping activity expands, the need for distribution centers is becoming more acute. Together with an established manufacturing sector, both sources of demand are supporting the absorption of industrial space. More tenants moving in are enabling properties to perform at a greater level. The metro’s vacancy rate has declined 400 basis points since 2009 and is now under 6 percent. Availability is lowest …

June 26, 2019

Market Reports Northeast Northeast Market Reports Office Pennsylvania

Rent Growth in Pittsburgh Office Market Leads to Development Wave

by Taylor Williams June 19, 2019

The Pittsburgh office market has experienced significant new development over the last five years, particularly in the urban and downtown fringe submarkets. This is expected to continue in the coming years, with several new developments that are currently in planning or under construction. Historically, urban office supply in Pittsburgh has been constrained due to the economic hurdles of new development. With limited sites for new projects, land costs at a premium and significant site work required, Pittsburgh’s nominal rent growth did not allow for economically viable projects. However, rent growth in recent years has led to a new wave of development, which has accommodated companies moving to Pittsburgh along with existing businesses growing and/or relocating within the market. Most of the new office development has taken place in urban submarkets surrounding downtown, including the Strip District, Oakland, East Liberty and the North Shore. These submarkets have attracted more development than the CBD due to greater availability of development sites, as well as lower construction costs. Development Pockets Total development costs of Class A office buildings on the fringe of the CBD are generally $250 to $300 per square foot. For this project cost, gross rents in the range of $30 …

June 19, 2019

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