We Welcome Your Suggestions
As we move into the new year, Central Philadelphia Development Corporation welcomes comments from readers of our bi-monthly Developments e-newsletter. Are there developments or business trends to which you think we should devote more coverage? Types of projects we should focus upon more. Please send comments to JoAnn Loviglio at firstname.lastname@example.org.
Office Sector News
Philadelphia CBD Office Market Closes 2019 On A High Note
The CBD office market concluded 2019 with robust positive absorption, continued rent growth, record low vacancy, new construction, and the promise of more demand-driven development, according to fourth-quarter 2019 office analysis by Newmark Knight Frank (NKF). Activity was largely driven by the eds & meds sector, which contributed significantly to the overall quarterly absorption of 142,976 square feet.
Market-wide vacancy was trimmed by 20 basis points to 13.4%, essentially on par with the lowest vacancy rate in this economic expansion cycle, which was recorded in the third quarter of 2018 (13.3%). The decade can be characterized by steady recovery from the Great Recession, capped at the end with a positive surge in activity, NKF stated.
Comparative Low New Construction Compared to Other Markets
Philadelphia has the second lowest office construction rate of the largest central business districts in the U.S. relative to total inventory, according to newly released data from JLL. The only office buildings under construction in Philadelphia are two single-tenant buildings at The Navy Yard totaling 231,000 square feet, just 0.5% of office inventory in the central business district.
JLL notes that if office construction in Philadelphia were happening at the average rate experienced across other CBDs, we would have roughly 2 million square feet being developed.
Based on the recent experience of local developers of one new construction job for every 600 to 700 square feet of office development, 2 million square feet of new development would translate into slightly more than 3,000 new construction jobs across 25 different trades. Based on an estimate of 175 square feet per permanent job, this could result in 11,000 new permanent office sector jobs.
While the lack of office construction isn’t due to a lack of developer interest, one market fundamental that continues to impact Philadelphia's market is low average asking rents. Of the top 20 CBDs, JLL finds that Philadelphia currently has the fifth lowest rent. One of the key advantages of Philadelphia’s KOIZ’s is that they remove from tenant occupancy costs several significant City taxes and enable developers in very limited portions of the city to charge the higher rents necessary to support new construction.
Morgan Lewis Signs Deal For New $200M Center City Office Tower
Morgan Lewis & Bockius has executed their lease with Parkway Corporation to have built a new, $200 million headquarters at 2222 Market Street. Morgan Lewis will occupy the entire 19-story, 305,000-square-foot building, which is expected to break ground this summer. The law firm anticipates moving its 550 local employees into the new tower in 2023.
The site consists mostly of a surface parking lot. Bohler Engineering will oversee engineering and Studio Bryan Hanes has been awarded landscape design.
CBRE Picks Center City For Its 1st Hana Location In Northeast U.S.
CBRE is teaming with San Francisco-based Shorenstein Properties, the owner of the 1818 Market Street office tower, on two stories of coworking space. The 50,000-square-foot space, which is set to open by the end of 2020, is the seventh to be announced under CBRE’s Hana brand of collaborative offices and will be its first to open in the Northeastern United States.
CBRE launched its Hana-branded spaces nearly a year ago as a way to partner on flexible-space ventures with landlords seeking a bigger piece of the shared-office market.
Silverstein Signs Law Firm Akin Gump Strauss At 1735 Market
A year after purchasing 1735 Market Street, New York-based Silverstein Properties has signed international law firm Akin Gump Strauss as a tenant and expanded one of its long-term tenants in the office building to push the occupancy above 90%.
Currently at Two Commerce Square, Akin Gump has signed a 16-year lease on 30,000 square feet at 1735 Market. Robert Half International renewed and grew to a total of 17,401 square feet from 14,577 square feet on the 25th floor of the building. The human resources consulting firm has been a tenant since 2001.
HealthVerity Triples Its Office Space Amid Expansion Plans
Center City-based startup HealthVerity, makers of a privacy-focused data marketplace for the pharma and insurance industries, ended 2019 by tripling its space at 1818 Market Street as it prepares to increase its staff by about 50% this year.
The growth comes after a $25 million Series C raise in spring 2019. The company scaled from about 50 employees in 2018 to 100 at the end of 2019. The goal for 2020 is to add about 50 more.
Eds & Meds News
Jefferson Pursues Sale Of Some Of Its Real Estate Holdings
Thomas Jefferson University and Jefferson Health announced plans to form a long-term partnership with an Ohio real estate investment trust to free up funds for other projects, including accelerating the expansion of its regional network of ambulatory care centers. Under the terms of a memorandum of understanding, Toledo-based Welltower Inc. would acquire a stake in as yet-unspecified real estate assets of Jefferson.
Jefferson officials said the move would enable it to reduce some of its fixed-asset investments and redeploy the capital to other clinical and academic strategic areas. Jefferson and Welltower expect to finalize a definitive agreement by mid-April.
Philadelphia-Based Biotech To Get $1.4B If It Meets Targets
Aro Biotherapeutics Co., a biotech company founded by two former Johnson & Johnson researchers, has signed a pact to develop drugs with Ionis Pharmaceuticals Inc. that could bring as much as $1.4 billion in cash, licensing, milestone, and royalty payments to Philadelphia-based Aro if it meets research, development, and market targets over the next several years.
Ionis, a Carlsbad, Calif.-based company, already has “a broad pipeline of potentially transformational medicines,” but Aro adds “an even broader array of disease areas,” said C. Frank Bennett, Ionis’ chief scientific officer. Aro, based at CIC Philadelphia at 3675 Market Street, is developing a new drug candidate as a potential treatment for advanced lung cancer.
Health Tech Firm Raises $1.75M, Plans To Double Headcount
Repisodic, a Philadelphia health care technology company that has developed software for patients who are being released from the hospital but still need care, has raised $1.75 million from a private stock sale. The seed round was led by a venture capital division of American Enterprise Group Inc.
Founded in 2017, Repisodic’s technology was designed to help patients, families and caregivers navigate the transition from the hospital to post-acute care settings such as nursing homes and rehabilitation centers. Repisodic was one of 17 early-stage companies to receive a total of $3 million in pre-seed funding from Ben Franklin Technology Partners of Southeastern Pennsylvania in 2018.
Wawa Debuts New Store Format In Center City
Wawa Inc. has debuted a new store format in Center City focused on mobile and online orders, bridging the gap between online and in-store shopping. The new convenience store located at 16th and Ranstead streets is 3,000 square feet, which is half the size of a standard Wawa and features the chain’s first walk-up window for grab-and-go items and online orders.
The new location will also stock more environmentally friendly lids, straws and bags.
New Restaurant Announced For Renovated Atlantic Building
Restaurant chain Steak 48 will open a 12,000-square-foot location in The Atlantic residential high-rise at Broad and Spruce streets. The restaurant, slated to open in April, will join other Steak 48 locations in Chicago and Houston.
The Atlantic, originally an office building erected in the 1920s, underwent extensive renovations designed by architect Rafael Vinoly.
Tower Investments Signs Giant To Anchor South Broad Project
Tower Investments has signed Giant Food Stores for a long-term lease on 40,000 square feet to anchor its proposed mixed-use project at Broad Street and Washington Avenue. The store will add to Giant’s growing presence in Philadelphia, where the grocer plans to open its fourth small-format Heirloom Market in the Queen Village neighborhood and a 65,000-square-foot supermarket at PNC Group’s River Walk complex under development near 23rd Street and JFK Boulevard.
As Center City’s population has grown, grocers have followed including Sprouts Farmers Market on South Broad Street and a second Trader Joe’s location near the Pennsylvania Convention Center.
Giant also has leased and plans to renovate a 124,000-square-foot distribution center at 3501 Island Avenue for use as a distribution center for its stores and for its growing Giant Direct home delivery and in-store pick up business. The new facility is anticipated to generate 200 new jobs.
Ritz At The Bourse To Close By The End Of January
The Ritz at the Bourse movie theater complex will close January 31, and final screenings will be January 26. The six-screen theater was opened by Ritz Theatre founder Ramon L. Posel in 1990. Ownership was transferred in 2007 to the Landmark Theatres chain, which was sold to Cohen Media Group in December 2018 for a reported sum of $70 million to $100 million.
Cohen Media, founded in 2008 by real estate developer Charles S. Cohen, acquired 56 Landmark theaters in 27 markets, including the Ritz Five, Ritz at the Bourse, and Ritz East. There was no immediate word about what would happen with the building or whether the Ritz at the Bourse would be marketed to distributors like Netflix.
Residential Market News
Durst Closes On Delaware River Development Site
The Durst Organization has paid $10 million for the city-owned lot near the Delaware River waterfront north of the Benjamin Franklin Bridge, where it plans an apartment tower. The 1.6 acre site, known as the Vine Street lot, will be the first Philadelphia project for the New York-based developer.
Durst aims to break ground on the 25-story tower with 10,000 square feet of retail space during the first three months of 2021. The property is directly across the street from an assemblage of piers that Durst acquired in 2017, which it has yet to begin developing. Those piers currently house waterfront restaurants including Dave & Buster’s and Morgan’s Pier.
More Multi-Family Coming To Delaware River Waterfront
Plans are underway for a 448-unit residential complex on a Delaware River waterfront site in South Philadelphia once proposed as a Foxwoods Casino. The bulk of the project will consist of a multi-family structure, supported by one-for-one parking and more than 12,000 square feet of retail space.
The apartment structure will be built first, followed by 92 townhomes, according to developer National Realty Investment Advisors. Designed by BLT Architects, the proposed multi-family building features two mid-rise towers connected by a long parking podium.
Planned 250-Unit Fishtown Apartment Project Put Up For Sale
Development group Streamline has put up for sale its roughly 250-unit mid-rise apartment project planned near Fishtown’s Delaware River waterfront. The apartment project is being advertised for sale at $16.7 million, according to a listing on the website of brokerage Rittenhouse Realty Advisors.
Streamline plans to retain ownership of the historic Edward Corner warehouse building adjacent to the development site, which it has been renovating into its new headquarters.
It Costs Less To Buy Than Rent In Philadelphia, Study Says
Buying a home is more affordable than renting in 53% of U.S. housing markets, including in Philadelphia, according to a new report from real estate analytics company Attom Data. The analysis, however, showed that ownership tended to be more affordable in lightly populated counties and renting more affordable in more populous suburban or urban areas.
Philadelphia was unlike its populous counterparts in this case. Only seven counties with populations of at least 1 million in Attom’s analysis were more affordable to buy a home than rent: Miami-Dade County, Fla.; Broward County, Fla.; Wayne County (Detroit), Mich.; Hillsborough County (Tampa), Fla.; Cuyahoga County (Cleveland), Ohio; and Allegheny County (Pittsburgh), Pa.
Area Housing Inventory Shrunk One-Fourth In The Last Year
The Philadelphia area is following a national trend: housing prices are up, but inventory is down. Housing inventory dropped 12% nationally from December 2018 to December 2019, the largest year-over-year decline in nearly three years, according to an analysis from Realtor.com.
The median listing price for a home in the Philadelphia area was $288,250 as of December, much lower than many other metros. However, the Philadelphia area had one of the highest increases in home prices, up 13.1% from last year. It follows a national trend in home buying, but the number of homes being purchased is down as well. October 2019 marked the eighth month in a row that home sales declined in the region.
Tax Abatement Changes Predicted To Impact Housing Prices, Construction
Changes to the 10-year tax abatement for new residential construction will reduce the market value of new housing by 8% to 9% after it goes into effect next year, according to a forecast from Kevin Gillen, a senior research fellow at Drexel University’s Lindy Institute for Urban Innovation.
Speaking at the Philadelphia Business Journal’s 2020 Economic Forecast event, Gillen said the changes will curtail new residential construction and he expressed concerns about the city’s longer-term outlook as a result. The number of building permits for new development has leveled off in Philadelphia after peaking two to three years ago, but an uptick is likely before the current tax abatement changes, he said.
Lubert-Adler Buys Former PECO Site On Delaware River
An entity affiliated with Lubert-Adler Real Estate Management has paid $14 million for a sprawling Delaware River waterfront property that was formerly a PECO power plant. The Philadelphia Business Journal, citing city property records, said the seller was Delaware Station LLC, which is an entity associated with developer Joe Volpe.
The property had been owned for the last five years by a partnership involving Volpe and developer Bart Blatstein. The power plant operated from 1917 until 2004. Lubert-Adler's projects include the redevelopment 2400 Market Street in a partnership with PMC Property Group. Plans for the site may include housing, entertainment among other uses.
Nevins Named New President of PIDC
Anne Bovaird Nevins has been named the new president of the Philadelphia Industrial Development Corporation (PIDC). Nevins is currently PIDC’s Chief Strategy and Communications Officer, overseeing capitalization, product development, strategic communications and partnerships. She has served on the Mayor’s Refinery Advisory Group, co-managed Philadelphia’s Amazon HQ2 bid, and has created and led PIDC and ULI Philadelphia’s partnership advisory committee on the future of work and its impact on industrial and commercial land.
Nevins begins the new role on January 27. She replaces John Grady, who in November announced his departure from PICA after 21 years to join Wexford Science and Technology.
New Report Examines PICA’s Approaching Expiration
A new report from The Pew Charitable Trusts’ Philadelphia Research and Policy Initiative examines the implications of the sunset of Pennsylvania Intergovernmental Cooperation Authority (PICA) in 2023 and whether it should be enabled to continue overseeing the city government’s finances, as it has done since Philadelphia’s fiscal crisis and near bankruptcy in 1990.
The report does not provide a definitive opinion about whether PICA should stay or go. However, it notes that while PICA has facilitated an era of fiscal stability, “the city still faces major fiscal challenges that will require continued discipline and creativity. … Ultimately, the lesson of three decades of PICA oversight is that institutions matter greatly to fiscal management and provide the structure within which sound policies are made.”
City Government News
PICA: City’s Q1 OT Spending Up $5.5M From Last Year
The City of Philadelphia’s overtime costs totaled $53.1 million, $5.5 million more than was spent in the first quarter of last year, according to the Pennsylvania Intergovernmental Cooperation Authority’s (PICA) Overtime Update for the First Quarter for FY2020.
FY2020 also marks the fifth year in which PICA has advocated for an improved budgeting process, with the goal of bringing total overtime spending back within a reasonable, responsible level. City departments spent 31.9% of their total allocation for FY2020 overtime spending in the first quarter and are projecting the city will reach its highest ever total for overtime spending this year.
PICA: December Tax Collections Up 21% Compared to Last Year
The City collected approximately $252.0 million in General Fund tax revenue in December 2019, compared to $208.7 million in December 2018, an increase of approximately $43.3 million, or 20.8%, according to preliminary figures from the Pennsylvania Intergovernmental Cooperation Authority (PICA). Strong increases in the City portion of the wage, earnings, and net profits tax, business income and receipts tax (BIRT) and realty transfer taxes pushed collections to an almost double-digit increase, compared to December of last year.
Fiscal year-to-date collections are ahead of last year by 9.5% through December. PICA reports that BIRT rose 74.8%, compared to a projected decrease of -2.1%; the real estate tax rose 16.9%, compared to a projected decrease of -0.8%; the realty transfer tax rose 7.3%, compared to a projected 2.7% increase; and the city sales tax collections rose 10.0%, compared to a projected growth of 5.8%.
A New Philadelphia City Council Begins Its Term
As a new City Council begins its four-year term, members said the body’s first orders of business will be related to issues of poverty, gentrification, gun violence, education funding and environmental hazards in city schools. Council members did not offer many specifics on bills they plan to introduce.
Additionally, Councilmember Mark Squilla said he hopes to introduce a package of bills aimed at addressing congestion on city streets through measures such as parking restrictions and placards for construction vehicles; Councilmember Allan Domb said he wants to reform the city’s tax structure and improve Philadelphia’s ability to attract and grow businesses; and Councilmember Kenyatta Johnson said he’s looking into potential legislation to address rising property assessments by capping assessment increases.
City Gets Low Marks In Recent Resident Survey
And two-thirds of Philadelphia residents believe the quality of the city’s services is fair or poor, according to a detailed survey conducted by Mayor Jim Kenney’s administration. The city launched the survey in August and almost 20,000 residents responded with their views about city services, the work of various departments, and quality of life issues.
When rating overall city services, 31.3% of residents said services are good or excellent, while 67.5% said they are fair or poor. The most popular answer was fair; 45% of residents gave that response. Those responses show a lower level of satisfaction from a similar 2016-17 survey. In that survey, 64% of residents said city services were fair or poor and 35% said they were good or excellent.
CEO Julie Coker Departing PHLCVB For San Diego Tourism Authority
Julie Coker is leaving the Philadelphia Convention and Visitors Bureau (PHLCVB) to become president and CEO of the San Diego Tourism Authority. Coker, president and CEO of the PHLCVB since 2016, will leave the organization in March. Pennsylvania Convention Center Authority CEO John McNichol will lead the national search for a successor.
Under Coker’s leadership, conventions and meetings brought to the city by the PHLCVB brought 1.3 million visitors and $500 million in economic impact to the region in 2018, and the region also set a record for tourist visitation the same year.
PHL Is One Of The Most On-Time Large Airports In The World
Philadelphia International Airport is among the most on-time large airports in the world, a new study shows. Travel data company OAG ranked airports with 10 million to 20 million departing passengers annually, based on the percentage of arriving and departing flights operating within 15 minutes of their scheduled times in 2019 for its 2020 Punctuality League study.
The report said that PHL improved its on-time performance in 2019, making it a newcomer to the list. The airport was ranked at No. 20, with a 79.61% on time performance in 2019.
The final tally is not yet in, but PHL officials predict that 2019 was a record year for passenger traffic. Preliminary numbers show a 4% jump year-over-year from almost 29.2 million passengers in 2018 to about 30.3 million through November 2019. Airport officials are predicting the numbers will rise to over 32 million when December figures are factored in.
Parks & Open Space News
Parks Are “Essential Infrastructure For 21st Century Cities”
Urban parks are not merely extra amenities for cities, but are essential infrastructure urban economies and quality of life, City Parks Alliance Executive Director Catherine Nagel writes in a recent column for The Hill.
Nagel notes that parks “are part of the basic physical structure needed for a functioning society. They make cities more livable, environmentally resilient, attract businesses and jobs, increase economic competitiveness, and create new revenue streams – all while saving cities billions on traditional infrastructure costs.”