Center City Office Rents Hit Record; Will Growth Continue?
The average asking lease rate for Center City office space broke the $30/sf barrier for the first time in Q1 2018, according to a new report from CBRE. The report cited factors including the growing economy and more office jobs, and significant capital improvements by landlords that command higher rents, while tenants continue to reduce and densify in their space, enabling them to pay those higher rents.
However, the report also noted that due to new supply of office space, as well as significant reductions of space by key tenants, the vacancy rate has been trending upwards. At the same time, "white collar" employment growth has slowed considerably over the last year, helping to deflate demand for office space.
Meanwhile, JLL notes that while Philadelphia new construction is the Northeast’s biggest bargain, availability may be destined to dwindle.
In the Philadelphia CBD, all currently-underway construction will deliver in 2018. Despite approximately 300,000 square feet of total renovated space available at 2400 Market and One Franklin, JLL noted that only 170,000 square feet of truly new construction is unspoken for, all at 3675 Market.
For more CBRE Philadelphia reports, go to cbre.us/research-results?k=philadelphia.
For more JLL Philadelphia reports, go to phillyblog.jll.com/2018/.
CPDC will be releasing its annual State of Center City report, with an overview of downtown office trends, at our April 24th meeting at 8:30 a.m. at the Union League, see below for details.
1760 Market St. Sells For $31.5M
Philadelphia attorney and real estate investor Victor F. Keen has purchased 1760 Market St. in Center City for $31.5 million. The 15-story, 126,689-square-foot office building was sold by a partnership involving Stockton Real Estate Advisors and Alterra Property Group.
The Philadelphia-based partnership bought the property in fall 2015 for slightly more than $20 million. At the time, the building was 65% occupied. After $4 million in renovations and upgrades, it now is 85% occupied. Stockton will continue to manage the property.
Firms Outside Of Philadelphia Buying More Center City Property
Philadelphia has garnered more interest from out-of-market investors in recent years, Bisnow Philadelphia reports. New York buyers are especially active and may be pushing locals out.
As some Philadelphia-based investment firms avoid the city and deploy their capital in other markets, firms from New York, Chicago and even outside the country have seen opportunities in the city’s top office buildings and a growing portion of the area’s value-add multifamily assets. High-profile buildings including 1600 Market St., Duane Morris Plazaand Evo at Cira Centre South sold recently to buyers from Virginia, Los Angeles and Singapore, respectively, while Centre Square, a stretch of the Delaware River waterfront and floors at 907 Market St., above Fashion District Philadelphia, all went to buyers from New York, since the start of 2017. New York-based Steinbridge Capital also recently opened a Philadelphia office, from which it is launching a single-family home buying venture.
Rubin To Step Down From PREIT Board
Ron Rubin has announced that he will not seek re-election to the board of the Pennsylvania Real Estate Investment Trust. While he will no longer have an official role at the company, Rubin will continue to own a significant amount of the company's stock.
Rubin, 85, has been closely associated with PREIT for three decades and has been a prominent business leader in Philadelphia for even longer, serving as the organizing and founder chair of the Center City District. The Philadelphia Business Journal reports that Rubin informed PREIT Chairman and CEO Joseph F. Coradino on March 23 that he was stepping down from PREIT’s board and would not stand for re-election at the company’s annual meeting on May 31.
Rubin served as CEO of PREIT from 1997 until 2012, and as chairman of from 2001 until February 2017.
Rittenhouse Square Tower Eyes 2019 Groundbreaking
A 48-story apartment tower planned for the last undeveloped corner of Rittenhouse Square has received approval from the Philadelphia Historical Commission’s Architectural Committee. The committee’s recommendation of the 1911 Walnut St. tower paves the way for a likely approval from the full commission and an early 2019 groundbreaking.
The project’s owner and developer, Southern Land Company, bought the Walnut Street site and an adjoining parcel on Sansom Street in 2015. The mostly high-end residential and retail development will preserve the vacant Warwick Apartments and Rittenhouse Coffee Shop buildings on Sansom Street for reuse as affordable housing.
Toll Brothers Revises Design For Jewelers Row Tower
Toll Brothers is expected to appear before the Civic Design Review board on April 3 with its fourth round of renderings of its proposed Jewelers Row condominium tower. Responding to criticism of its previous designs, the Horsham-based luxury home builder has made changes to the back of the glass tower overlooking Washington Square.
The new renderings do not preserve the facades of the existing buildings, which will be demolished to allow the project to move forward. The Preservation Alliance of Greater Philadelphia and other historic preservationists have unsuccessfully pushed for the preservation of the current facades.
Club Owners Plan New Offices And Dwellings Atop Club Venue
The owners of a dance venue north of Chinatown have received approval to add five mixed-use floors to the property. The Department of Licenses and Inspections has granted Meritis Group LLC a permit to build five new floors with residences and offices atop the existing NOTO nightclub property at 1201 Vine St.
The permit allows for the resulting nine-story building’s bottom two floors to remain in use as a dance venue, with offices on its third and fourth floors, a financial services user on its fifth floor, and 60 residential units on floors six through nine, topped with a roof deck.
Meridian Arranges $54M In Construction Financing For Pod Hotel
Modus Hotels and Parkway Corp. have secured $53.5 million in financing for the construction of the Pod Hotel slated to open in Center City in September 2019. The property, which formally broke ground last week, will join existing Pod Hotel locations in New York City and Washington, D.C.
Located at 31 South 19th St., the 11-story micro-hotel will include 252 rooms averaging just 170 square feet. A growing genre in the hospitality industry, the micro-hotel concept is defined by tiny rooms, trendy design flourishes, and lively on-site restaurants and bars.
Sheraton Society Hill Sells For $95.5M
The Sheraton Philadelphia Society Hill has been acquired by The Buccini/Pollin Group in a $95.5 million deal. The Washington, D.C.-based developer said the property will undergo a multimillion-dollar renovation and rebranding. The former owner, Maryland-based RLJ Lodging Trust, disclosed the selling price in a separate announcement.
Washington, D.C., hotel management company PM Hotel Group will manage the 364-room hotel, which has 20,000 square feet of meeting and event space.
Rittenhouse Hotel Nears Completion Of 6-Year, $10M Update
The Rittenhouse hotel is completing the final stages of a $10 million overhaul that began in 2012 when Hersha Hospitality Trust purchased the property. The completion of the long-term renovation project is expected by the end of May.
The final updates for the 118-room luxury hotel, which first opened in 1989, involves a redesign of 96 rooms with new furnishings, design elements and technology.
Financial Times Highlights Philadelphia’s Condo Boom
Philadelphia’s booming condominium market was the subject of a recent article in the Financial Times, which cited statistics from CCD’s new report, Housing Development in Perspective: 2018, regarding Center City’s growing numbers of millennials and empty nesters, as well as the record-setting 2,506 residential units completed in the downtown in 2016.
The article noted that “last year 146 condos in the city sold for more than $1 million, the type of sales activity that is common in New York and Boston, but unprecedented in Philadelphia. … The bulk of the $1 million-plus sales have been in new condo towers in the downtown area known as Center City, targeting the type of high-end buyers that typically preferred an estate in the suburbs.”
For more, go to ft.com/content/884e2938-290f-11e8-9274-2b13fccdc744 (requires subscription).
For CCD’s Housing in Perspective report, go to centercityphila.org/research-reports/housing-development-in-perspective-2018.
Bourse Makeover To Include 27 New Eateries
The Bourse Marketplace on Independence Mall, which is expected to open mid-summer, has announced most of the new tenants coming to the 24,000 square foot food hall. The historic Beaux Arts building, located between 4th and 5th streets, dates back to the 1890s.
The food hall, currently under construction, will upon completion feature a total of 27 diverse vendors offering food, drink and artisan goods.
Old City Businesses Create New 'Design District'
Ten independent business owners in the Old City area stretching from 2nd and 3rd streets to Market and Race streets have initiated the Philadelphia Design District, the scope of which includes all things that fall under design — furniture, kitchens, floral, art and sculpture, among others.
The Philadelphia Design District will hold an event on April 13 at the Bridge Building in Old City for a showcase event featuring designers, artists and renowned brands. Among the goals of the new design district is to brand Philadelphia as a historical center for creativity and design.
Irish Carrier Aer Lingus' First Flight Arrives At PHL
Aer Lingus has become the sixth foreign airline to service Philadelphia International Airport. Less than six months after announcing that it would operate year-round nonstop flights between PHL and Dublin, the flag carrier airline of Ireland kicked off the new service.
There will be four direct flights a week to and from Philadelphia. There will also be connections via Dublin to Philadelphia from a range of other UK and European destinations.
For more, go to aerlingus.com/travel-information/aer-lingus-news/philadelphia/.
SEPTA Announces End Of Tokens
SEPTA will stop selling transit tokens on April 30. The transportation authority has for months been phasing out machines that sell tokens at subway stops.
It is replacing tokens, along with the separate cards for weekly and monthly pass holders, with a reloadable fare card, SEPTA Key. The cards are expected to be introduced to Regional Rail this year.
For more, go to septa.org/media/releases/2018/3-22-18.html.
In other SEPTA news, a new report from the Federal Transit Administration shows bus ridership in Philadelphia fell 10% in the last year, one of the biggest drops in the country. Nationally, bus ridership on public transit declined about 4.7% from 2016 to 2017, the FTA data show. The federal report comes as SEPTA finishes up a nearly yearlong review of its existing network.
CCD’s new report on traffic and congestion in Center City, Keep Philadelphia Moving, examines how construction-driven lane closures, the rise of ride-hailing companies, the increase in delivery vehicles and other factors have led to a marked increase in travel times for Center City buses as well as motorists.
The CPDC/CCD report was cited in a March 30 editorial in The Philadelphia Inquirer, which called it “a concise blueprint for understanding the full scope of the problem.” The editorial called upon Mayor Jim Kenney to “get all the entities at the table to figure out a strategy to tackle traffic planning, enforcement, and regulations that are more aligned with a vital and growing city.”
For CCD’s Keep Philadelphia Moving report, go to centercityphila.org/research-reports/2018congestion.
Repaving Safety Project Planned For Spruce, Pine Streets
A repaving project will get underway later this year along two Center City streets where serious crashes have occurred recently. The city’s Office of Transportation and Infrastructure Systems (OTIS) said the project will include repaving deteriorated portions of the road and repainting stop bars and crosswalks on Spruce and Pine streets, from Front to 22nd streets.
The project also will include relocating bike lanes so cyclists will be riding along the driver’s side of cars. Left-side bicycle lanes increase safety at intersections by making people on bicycles more visible to drivers, officials said.
Manufacturing, Service Industries Continue Growth in March
Manufacturing continued to grow in the region in March, according to responses to the Manufacturing Business Outlook Survey conducted by the Federal Reserve Bank of Philadelphia, with new orders up for 52.1% of firms, down for 16.9%, and remaining the same for 31.4%. The number of full-time employees increased for 34.6% of the companies, decreased for 9.0%, and was unchanged for 55.5%.
Looking ahead six months, 57.8% of the firms expected conditions to improve, 9.9% anticipated a downturn, and 29.7% predicted no change.
Business activity continued to expand in the region’s service sector in March, according to responses to the Nonmanufacturing Business Outlook Survey, with new orders up for 35.1% of firms, down for 3.1%, and remaining the same for 34.2%. The number of full-time employees increased for 28.3% of the companies, decreased for 5.7%, and was unchanged for 61.9%.
Looking ahead six months, 51.7% of the firms expected conditions to improve, 1.9% anticipated a downturn, and 37.7% predicted no change.
For the Manufacturing report, go to philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos0318.
For the Nonmanufacturing report, go to philadelphiafed.org/research-and-data/regional-economy/nonmanufacturing-business-outlook-survey/2018/nbos0318.
Giant Cranes From China Arrive At Philaport
Two new 21-story-tall cranes capable of unloading the world’s largest container ships have completed their three-month boat trip from China to the Port of Philadelphia. The cranes, manufactured in Shanghai at a cost of $12 million each, will allow Philadelphia’s port to better compete with other coastal cities in cargo capacities and speed of off-loading, port officials said.
The port corporation bought one of the cranes, and Holt Logistics Corp. and Greenwich Terminals LLC, which operates the Packer Avenue terminal, paid for the second.
Report: Philadelphia No. 4 in Venture Capital Investment Returns
While Philadelphia ranks 11th nationally in venture funding, it comes in at No. 4 for its venture capital investment returns, according to a new report by PitchBook.
The report found that from 2010 to 2017, Philadelphia companies took in $5.7 billion in investment. However, when regions are ranked according to the biggest returns on invested capital, Philadelphia tied with Los Angeles for the fourth spot. Both cities returned 4.7 times the amount of invested capital.
Ben Franklin Invested $12M In Local Startups In 2017
Ben Franklin Technology Partners of Southeastern Pennsylvania announced it committed $12 million to 67 Philadelphia-area companies over the course of the last year. That's nearly $2 million more than it committed in 2016, when it invested $10.6 million in 52 local companies. At the time, both figures were the highest in a single calendar year.
The vast majority -- 44 -- are located in Philadelphia. The state-backed fund and economic development organization now has a total of 223 active companies in its portfolio.
For more, go to sep.benfranklin.org/news_reports/cy-2017/.
Einstein And Jefferson Sign Letter Of Intent For Merger
Thomas Jefferson University has struck a preliminary agreement to acquire Einstein Healthcare Network. If both organizations decide to move forward upon completion of a due diligence period, the next step will be signing a definitive agreement and seeking the necessary regulatory approvals.
Jefferson and Einstein officials said the merger would create a “clinical academic enterprise that would boast the largest residency program in the Philadelphia region.” The merger would also bring together nationally recognized rehabilitation hospitals: MossRehab, which is part of Einstein, and Magee Rehabilitation, which joined Jefferson this year.
Tyler School Of Art Launches Fund As Federal Grants Drop
The Tyler School of Art at Temple University has a new funding initiative directed toward Philadelphia’s professional artists, who officials say are struggling to find funding sources for their work as federal arts money continues to decline.
Temple Contemporary at Tyler started The Velocity Fund, an initiative supporting visual artists living in the city with grants of up to $5,000. The fund is the first Andy Warhol Foundation-supported regional re-granting program in Pennsylvania, and only the second on the East Coast.
Wistar Teams Up With Local Biopharma Startup
The Wistar Institute has entered into a research collaboration with Innate Biologics to develop new ways to treat inflammation-based diseases including cancer, asthma, rheumatoid arthritis and Crohn’s disease.
Officials said the collaborative partnership is developing transdermal applications to treat diverse inflammatory skin conditions that result from trauma, wound healing, reactive dermatitis, and age-related inflammation.
Mazzoni Center Names New CEO
The Mazzoni Center, a Philadelphia healthcare provider serving the LGBT community, has named a new CEO. The board of directors hired Lydia Gonzalez Sciarrino for the post following a five-month national search. She succeeds Stephen A. Glassman, who was serving as interim CEO.
Gonzalez Sciarrino was most recently chief executive of Whole Family Health Center, which she grew from a small clinic into a profitable healthcare organization with two offices in Florida.