CPDC Developments Newsletter - 07.23.19

Office Sector News

CBD Rents Are Up, New Projects Set To Grow Supply

Build-to-suit projects planned at 23rd and Market and at 20th and Arch streets, along with major redevelopments announced in Q2, are set to expand the office supply, bringing new space to market in Center City, Newmark Knight Frank notes in its new Philadelphia Office Market research report.

Average asking rents in the central business district reached $33.08/sf in the second quarter, crossing the $33/sf mark for the first time ever. Trophy office space vacancy tightened to 9.4% quarter over quarter with rates now in the mid to upper $40s per sf, overall Class A available space was down to 13.3%, and starting rents have pushed through to the mid $30s per sf. “Tenants are clearly demonstrating with their leasing habits that Philadelphia CBD office space is worth a premium – and one that is likely to keep rising in 2019 as vacancy remains low,” the report states.

Office Vacancy Falls To 10.4% In CBD; Retail Vacancy Drops To 7.6%

Counting a slightly different inventory, Colliers International Office Research Report calculates that the office vacancy rate in Philadelphia’s CBD fell during the first six months of the year, from an adjusted 10.7% to 10.4%, with absorption that was “low but positive.”

In its companion Retail Research Report, Colliers found that Philadelphia’s retail vacancy fell from 8.0% to 7.6%. The report noted that the retail market in Philadelphia is continuing to expand, with positive signs that include the opening of Fashion District Philadelphia in the third quarter as well as new retail portions of residential developments citywide.

Office report:

Retail report:

Chubb Considering Two Proposed Developments For Office Move

Insurance giant Chubb is considering a move into one of two proposed developments, where it would occupy about 400,000 square feet. Chubb is reportedly considering Parkway Corporation’s planned 15-story tower at 20th and Arch streets, or Brandywine Realty Trust’s Schuylkill Yards development district.

If Chubb chooses the Center City location, Parkway could potentially have two ground-up office developments downtown. Law firm Morgan Lewis & Bockius has reportedly agreed to anchor Parkway's project at 22nd and Market streets. Chubb currently owns and occupies the 361,000-square-foot office building at 436 Walnut Street, and leases an additional 140,000 square feet at nearby One Washington Square from Keystone Property Group.

13 New Leases This Year At 123 S. Broad

After the departures of two large tenants, 123 S. Broad Street has signed 13 new leases so far this year that total 66,371 square feet. With the departures of Montgomery McCracken and Wells Fargo, a successful strategy was implemented to create dedicated spaces within the building for new tenants coming from three sectors: nonprofits; law, accounting and other traditional professional businesses; and creative firms.

New occupants of the 30-story, 725,000-square-foot building include Fame House, part of Universal Music Group, which took the 26th floor totaling 22,730 square feet; Brian Communications, a public relations firm, leased 9,000 square feet on the 27th floor; Instructure, an ed tech firm, leased 10,000 square feet; and Promptworks, a software development company, leased 9,000 square feet.

Eds & Meds News

4 Health Institutions Explore Purchase Of St. Christopher’s Hospital

Four Philadelphia-based academic health systems are joining forces to explore a purchase of St. Christopher’s Hospital for Children, the sister institution of soon-to-be-closed Hahnemann University Hospital. Einstein Healthcare Network, Jefferson Health, Philadelphia College of Osteopathic Medicine and Temple Health have formed a consortium to negotiate such a deal.

St. Christopher’s and Hahnemann both are part of the recent Chapter 11 bankruptcy filing by the hospitals’ owner, Philadelphia Academic Health System, which aims to close Hahnemann in September. All four organizations have academic affiliations with St. Christopher’s to train physicians, nurses, or other healthcare staff. The group said it would submit a Letter of Intent to the hospital owner’s parent company.

Jazz Pharmaceuticals Signs $206M Deal For Cancer Therapy

Biopharma company Jazz Pharmaceuticals, which is based in Dublin, Ireland and has a large presence in Center City, has signed a definitive agreement to acquire an experimental cancer therapy program in a deal valued at up to $206.5 million. Under the terms of the deal, Jazz will make an upfront payment of $3.5 million to Redx Pharma for the company’s therapy program targeting mutant tumors.

The technology is designed to produce inhibitors aimed at cancerous tumor mutations that are seen in over one-third of all cancers.

Tech News

11 Startups Selected For Second Comcast LIFT Labs Accelerator

Eleven startups have been selected for the second Comcast NBCUniversal LIFT Labs Accelerator, powered by Techstars. The winners were chosen from hundreds of applicants from 46 countries and will partner with mentors at the Comcast Technology Center in Center City.

They will also participate in custom workshops, training sessions, and business meetings throughout the course of the 13-week program. Unlike last year, where at least three of the 10 companies chosen to participate developed some type of physical product, every startup this year is taking a software-based approach. More than half of the 11 picked this year are in or adjacent to the sports world, and following Comcast’s acquisition of Sky last year, the class will have access to mentors from the European satellite giant.

N3rd Street Gamers Secures $1.5M For 2 Esports Arenas

N3rd Street Gamers has secured an additional $1.5 million in funding that brings its series A fundraising round to the $10 million mark and will be used to open two new esports arenas as part of its national expansion. The investment is set to close in Q3.

The Northern Liberties-based firm is working to open esports arenas in “core regions,” which it declined to disclose, and eventually build 300 locations over the next decade.

Hospitality News

Sonder Adds Two More Center City Buildings To Its Portfolio

Sonder, a San Francisco startup that is a new competitor to Airbnb and traditional hotels, has leased two more buildings in Center City, bringing the total number of rental units it controls in Philadelphia to nearly 1,000. 

The company has added 1620 Sansom Street, where it will have 207 units, and 1101 Walnut Street, where it will have 111 units. The Walnut Street site, formerly a low-rise, Wendy's fast food restaurant, was recently bought by Abrams Realty Development, which has plans to raze the structure.

Retail News

Giant Set To Open 2nd Urban Format ‘Heirloom Market’

Giant Food Stores is opening its second urban format store in Philadelphia on August 2. The new 9,950-square-foot store at 3401 Chestnut Street is expected to create about 50 full- and part-time jobs.

The Carlisle, Pa.-based company opened its first Giant Heirloom Market in January at 2302 Bainbridge Street. It plans to open other locations at 1002 N. 2nd Street in Northern Liberties and 201 South Street in Queen Village.

Local Activewear Company Planning Center City Pop-Up 

Women’s activewear company Addison Bay is planning to open a Center City pop-up store this holiday season. Founder and CEO Marguerite Adzick said the multi-brand online store that she launched in September 2018 is looking at the Rittenhouse Square area to open a retail space.

Beyond a pop-up store, Addison Bay is working to start its own private label. The online store sells clothing from 40 global brands, with offerings from high-performance activewear to casual comfort apparel.

Employment News

Philadelphia Ranks 22nd In Tech Talent Attraction And Growth

In a new report from commercial real estate firm CBRE, Philadelphia ranked 22nd among 50 U.S. and Canadian markets with the highest rates of talent attraction and growth. In 2018, it came in 24th. The Scoring Tech Talent report ranks markets according to 13 metrics, including tech talent supply, growth, concentration, cost, completed tech degrees, tech industry outlook for job growth, and market outlook for both office and apartment rent cost growth.

Philadelphia has a tech labor market of 109,670, or a 13.9% increase from 2013 to 2018, according to the report. That includes more than 35,000 software developers and programmers and nearly 57,000 computer support professionals.

Transportation News

SEPTA Will Soon Roll Out More User-Friendly Transit Map

SEPTA is releasing a new transit map at 100 locations this summer that combines subway, bus, regional rail and PATCO lines all in one place. Unlike the current schedule, which has been in place for decades, the new map also features route colors that indicate each bus line’s frequency.

The change comes after SEPTA found that bus ridership declined by 17% from 2012 to 2018. In response, SEPTA hired transit consultant Jarrett Walker and Associates, which found that the authority could boost bus ridership by implementing a more frequent bus schedule, and making SEPTA maps more rider-friendly, among other suggestions.

Residential Market News

Young Professionals Continue To Fuel Philadelphia Housing Demand

Philadelphia’s tech hub status continued to draw in a young and skilled labor force, boosting housing demand and supporting a solid multifamily market, according to a new analysis released by Multi-Housing News. Rents rose 3% year-over-year through April to $1,354, while occupancy in stabilized properties remained virtually flat.

The metro added 38,400 jobs in the 12 months ending in March. Gains were led by the education and health services sector (17,600), followed by construction (5,600), leisure and hospitality (5,200) and government (3,800).

Development News

3 Properties In East Callowhill Hit The Market

Colliers International has announced that three industrial properties are on the market in the burgeoning East Callowhill district: 400-10 N. 6th Street, a 15,400-square-foot building occupied by the Philadelphia Ball & Roller Bearing Company; 621-39 Callowhill Street, a 15,060-square-foot building occupied by the Arch Sewing Machine company; and 442-62 N. 8th Street, a 15,720-square-foot building occupied by Ideal Tool and Equipment Service.

All three locations are within a Federal Opportunity Zone and zoned for commercial and residential mixed use. The area is home to Alliance HSP’s recent redevelopment of the former Destination Maternity site into Yards Brewery and a Target store, with an additional building to come featuring 50 apartments and 11,000 square feet of retail space.

Parks & Open Space News

Plans Unveiled For New Stretch Of Delaware River Trail

The Delaware River Waterfront Corporation has released renderings of what the Delaware River Trail will look like from Spring Garden Street to Washington Avenue, the next section of the trail that is set to be completed.

The plans show a concrete walking path for pedestrians and a two-way asphalt biking lane adjacent to it. For the full length of the trail, which runs adjacent to Christopher Columbus Boulevard, an 8-foot planting buffer will be placed between the bike lane and the boulevard. Additionally, there will be a five-foot buffer between the bike lane and the concrete sidewalk. DRWC officials expect the trail to begin construction next year and be finished by the end of 2021.

Economic News

PICA: June Tax Collections Up 11.4% Compared To Last Year

The City collected approximately $210.4 million in General Fund tax revenue in June 2019, compared to $188.8 million in June 2018, an increase of 11.4%, according to a new report from the Pennsylvania Intergovernmental Cooperation Authority (PICA). Collections for every tax except the beverage tax increased in June, pushing year-to-date collections to $3.62 billion for FY2019, a 7.1% increase over last year.

Through June, the business income and receipts tax (BIRT) rose 21.9%, compared to a projected growth of 12.8%; the real estate tax increased 7.9%, compared to a projected growth of 1.5%; the realty transfer tax decreased by -0.8%, compared to a projected 1.0% increase; and the City sales tax collections rose 6.5%, compared to a projected growth of 8.4%.

PICA Board Approves City’s FY2020-2024 Five Year Plan

The Pennsylvania Intergovernmental Cooperation Authority (PICA) has unanimously approved the City of Philadelphia’s Five Year Plan for Fiscal Years 2020-2024. In its approval, PICA said it was confident that the assumptions and estimates in the Plan were reasonable and appropriate, and that the Plan projects positive year-end fund balances for the next five fiscal years.

PICA did note several factors that might present risks to the Plan, including an economic recession; the projected growth of the BIRT and the real estate transfer tax; funding of the now locally-controlled Philadelphia School District; and increasing costs of funding pension liabilities.

Government News

City, School District Told To Repay Millions To Commercial Properties

A judge has ordered the City of Philadelphia and the Philadelphia School District to repay nearly $50 million in property tax revenue. Senior Common Pleas Judge Gene Cohen said that commercial properties were targeted in the city’s 2018 reassessment that resulted in $118 million in additional revenue for the city and school district.

After presiding over a two-week trial in June, Cohen ruled that the city improperly focused on about 700 of Philadelphia’s most prominent and valuable buildings in an effort to boost revenue. Cohen’s order nullified the 2018 assessments for the properties involved in the case, and ordered the city to refund the plaintiffs the difference between the 2017 and 2018 taxes. The city said it plans to appeal the ruling.