CPDC Developments Newsletter - 11.26.19

Office Sector News

Center City Office Market Remains Strong 

The Center City office market continues to experience positive absorption, an uptick in rents, lower vacancy rates and the potential for construction of multiple new buildings. In the CBD, the vacancy rate stood at 11.2%, positive absorption at 88,252 square feet and average asking rents at $33.63, according to CBRE Inc.'s third quarter report.

Third quarter reports by compiled by the Philadelphia Business Journal from several of the area’s commercial real estate firms have found a variety of new companies entering the Center City market and existing companies expanding. For example, MunichRe, which is based in Princeton, N.J., has leased 31,000 square feet at 1700 Market Street for a new office.  

The unemployment rate remains low, mirroring the decline in the national unemployment rate. Philadelphia has added 14,000 jobs over the last 12 months and outperformed the overall regional job growth, according to Cushman & Wakefield.

Brandywine Plans 23-Story Mixed-Use Tower At 21st & Market

Brandywine Realty Trust is planning a 23-story mixed-use tower on the 2100 block of Market Street that would include 326,000 square feet of office space and 147 residential units, with shopping and dining on the first and second floors. The building will be designed by Erdy McHenry Architecture.

City Council’s Rules Committee is scheduled to vote next month on legislation to modify the 2120 Market Street site’s zoning to permit the high-density project, a change supported by the Center City Residents’ Association. Bottom of FormThe plans also designate as public space a memorial on the block’s western edge that commemorates the site of a deadly demolition accident in 2013, when the site was under different ownership.

This proposed development joins two other proposed office buildings on the west side of Center City, planned by Parkway Corporation.  All will require securing of lead tenants in order to commence construction.

Eds & Meds News

Philadelphia's Biotech Industry 'Punching Below Our Weight'

Given the region’s size and the strength of its life sciences industry, the market should be bringing in more investment capital than it does, Dean Miller, president of the Philadelphia Alliance for Capital & Technologies, said at a biotech conference earlier this month.

Last year, the Philadelphia market for the first time ranked ninth among the top U.S. markets based on number of venture capital deals completed, with 214. While 80% of VC funding is coming from investment firms located elsewhere, Miller said a trend that he finds most troubling is the dramatic drop in funds raised by Philadelphia-area VC firms to just $4 million in 2018, from more than $100 million in 2017.

The good news, he said, is that the Philadelphia region has the second most active angel investing network in the country. He said entrepreneurs and the region as a whole, which has emerged as a leader in cell and gene therapy and personalized medicine, must do a better job of telling their stories.

In similarly focused comments at the annual Urban Land Institute Real Estate Forecast for 2020, JLL’s Lauren Gilchrist noted that the Philadelphia region secured 2.5% of the nation’s total venture capital investment for the life sciences and 3.7% of national NIH funding for a total of $1.3 billion in 2019. She also noted that the city currently hold 24% of the region’s modern competitive lab buildings, with 1.4 million square feet distributed between University City and the Navy Yard, and 167,850 sf under construction at the Navy Yard.

Architect Releases Designs For East Market Tower

Plans for a medical office tower on the southern portion of the East Market project site facing Chestnut Street are set to be presented December 3 to the city’s Civic Design Review board. The advisory panel will review New York-based Ennead Architects’ plans for the 23-story medical building, as well as plans for an adjacent 24-story tower with 396 dwelling units designed by Morris Adjmi Architects, also of New York.

National Real Estate Development, based in Washington, D.C., broke ground in 2014 on the $800 million East Market project. It is nearing completion of work on the Market Street-facing two-thirds of the property, which include a pair of apartment towers and an office building.Bottom of Form National is also converting the historic Stephen Girard Building on 12th Street into a hotel under Hilton’s Canopy brand.

Grady Leaving PIDC, Successor To Be Named In January

John Grady, who has led the Philadelphia Industrial Development Corp. since 2011, is stepping down from his post and joining Baltimore-based Wexford Science & Technology LLC, developer of the uCity Square complex in West Philadelphia, as an executive overseeing projects in the Northeastern U.S.

Grady started at PIDC in 1998 and oversaw the transition of the Navy Yard to city ownership and ultimately its successful redevelopment.  He took over the head job at PIDC when Peter Longstreth retired in 2011. During Grady’s tenure as president, PIDC has issued 500 loans totaling more than $150 million and impacting 97% of the city’s ZIP codes. His successor will be announced in January.

Tech News

Australian Email Company Fastmail Growing In Center City

Australia-based private email company Fastmail has put down roots in Center City as it plans for continued growth. In the last year, company has expanded its local office from two employees to 15.

Fastmail COO Helen Horstmann-Allen was the developer of email service Pobox at the University of Pennsylvania. The company was acquired by Fastmail in 2015 and it has since opened its growing headquarters at Broad and Walnut streets.

Hospitality News

Nat Geo Traveler Says Philadelphia Is The U.S. City To Visit In 2020

Philadelphia has been named one of the 25 must-visit destinations in the world in 2020, according to a new issue of National Geographic Traveler that hits newsstands this Friday. The city is one of only two U.S. destinations (alongside the Grand Canyon) to make the list, which is part of the publication’s annual Best Trips feature.

Among the highlights in the Nat Geo Traveler piece is the Deck the Hall Light Show sponsored by Independence Blue Cross, which returns to Dilworth Park starting tonight at 5:30 p.m. and continuing nightly through January 1.

Vernick Opens Wine Shop Next To Eponymous Restaurant

Chef Greg Vernick has opened a wine and retail shop that doubles as a small private-dining space located at 2029 Walnut Street, next door to his popular Vernick Food & Drink. Vernick Wine can seat up to 32 people.

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Vernick’s team revamped and restored what is now Vernick Wine’s high-ceilinged main room, which is lined with shelves featuring wines available for purchase.

Di Bruno Bros. Opens Catering Venue In Historic Bank Building

Gourmet food company Di Bruno Bros. has opened a 2,300-square-foot catering venue and events space called Banca in the 150-year-old former Northern Savings Fund Building at 600 Spring Garden Street. Di Bruno Bros took over the Frank Furness-designed former bank in the spring and spent the last six months on renovations.

Banca is the latest example of growth taking place in the Spring Garden corridor. A block to the east, Yards Brewing and Target have taken over a former furniture storage space, while a warehouse at 990 Spring Garden is home to Roy-Pitz Barrel House and soon-to-open Lucky Well BBQ and 915 Spring Garden is being renovated into art studios and commercial space anchored by the new Triple Bottom Brewing.

U.S. Lodging Revenue Growth Predicted To Slow Through 2021

A new report from CBRE Hotels Research forecasts that the U.S. lodging industry will remain strong through the next two years but revenue growth will continue to diminish.

U.S. occupancy levels are expected dip slightly but remain above 65.5% through 2021, 300 basis points greater than the STR long-run average. Concurrently, revenue per available room (RevPAR) is forecast to increase at less than 1% per year during the same timeframe, CBRE stated.

Retail News

Giant's Third Heirloom Market In Philadelphia Is Open

Giant Food Stores’ third urban-format grocery store in Philadelphia is now open and includes an underground taproom. The taproom is the chain’s first ever and will feature a gaming area with shuffleboard, arcade games and free Wi-Fi, the company said.

The grocer opened its first Giant Heirloom Market, a new urban-focused grocery concept, in January at 2303 Bainbridge Street, followed by another in University City and a planned store at 201 South Street. A two-story, 65,000-square-foot Giant supermarket is planned in the Riverwalk mixed-use project under development along the Schuylkill River at 23rd Street.

Aside from Giant, other grocers that have recently expanded in Greater Center City include Trader Joe’s, Sprouts Farmers Markets, Aldi and Lidl

Amazon Plans New Grocery Concept

Amazon has confirmed that it is planning to open a non-Whole Foods grocery store next year in Los Angeles. The e-commerce giant hasn't confirmed what it will call the new 35,000-square-foot store, nor its selection of goods and pricing.

As of this fall, the e-commerce giant signed at least a dozen leases in the Los Angeles area, with Philadelphia and Chicago widely cited as targeted expansion markets.

Last-Mile Warehouses In Demand, But For How Long?

The long-awaited return of industrial development within Philadelphia’s city limits has begun to materialize, with strong demand for last-mile distribution centers close to Center City. Philadelphia has 4 million square feet of industrial development in the pipeline.

But as Bisnow Philadelphia reports, questions remain about how far the market can go, as issues that have long sent businesses and developers to the suburbs still remain — high real estate taxes, labor unions and slow-moving or complex land entitlement processes. For last-mile distribution, many retailers and logistics companies trying to match Amazon’s two-day shipping model are trying to figure out how close is close enough.

Employment News

Unemployment Low, But Most Job Growth In Low-Wage Sectors

The Business Journal, in a recent analysis of job trends, referenced CCD/CPDC’s new report, Growing More Family Sustaining Jobs in Philadelphia, noting that while the city has added jobs for nine consecutive years, a disproportionate number of those jobs, a total of 60.5%, are in sectors paying $35,000 a year or less.

Residential Market News

Apartment Occupancy At Cyclical High Despite Inventory Growth

The most current data on new multifamily buildings across Greater Center City show a “market firing on all cylinders,” JLL noted in a new analysis of properties with 50 units or more and asking rents exceeding $2 per square foot. The inventory of units meeting those criteria has grown by 7,007 units across the eight ZIP codes in and around Center City, while the sum of units absorbed stands at 7,445, resulting in occupancy just below 94%. JLL said that represents the highest occupancy rate among large apartment buildings in this market cycle. The analysis does not measure the impact of new supply of rents and occupancy levels among the existing inventory of rental housing.

Meanwhile, more than 1,900 units are actively under construction and will expand the inventory in 2020 and 2021. “This next wave is overwhelmingly weighted to the east side of town, with the megaproject Piazza Terminal and waterfront projects gaining steam,” JLL states.

‘Permanently Affordable’ Housing Development Breaks Ground

On a long-vacant lot in South Philadelphia’s Point Breeze neighborhood, a development has broken ground that is part of a community land trust and intended to be “permanently affordable.” The development is slated to open in 2020 and include five townhomes and 33 rental housing units, all supported by Low Income Housing Tax Credits.

The Women’s Community Revitalization Project, which spearheaded the project, has a renewable 99-year ground lease on the land. The lease guarantees that rental housing built on the property will be permanently affordable, despite expiring subsidies. For homeowners, it means they can build equity but there will be a cap on how high the sale price can go.

As housing costs have increased in neighborhoods surrounding Center City and local politicians have become increasingly concerned about expiring affordability subsidies, the model appears to be gaining traction, WHYY’s PlanPhilly reports.

City Council Introduces Proposals To Reduce 10-Year Abatement

A bill that aims to phase down Philadelphia’s 10-year tax abatement for just new residential construction was introduced at City Council during the last session before the council session ends on December 12 and new legislators change the body’s political dynamics.

The bill, as proposed, would reduce the 10-year abatement by 10% each year it is in effect, while leaving the abatement on rehabs and commercial and industrial properties unchanged. Another piece of legislation that would increase the value of the city’s Homestead Exemption for homeowners was also introduced.

Transportation News

PennDOT Secretary Leslie Richards To Lead SEPTA

PennDOT Secretary Leslie Richards will be the new general manager of SEPTA effective January 2020.  SEPTA’s 15-member board unanimously to appoint Richards, the first planner to lead SEPTA, during their November board meeting. She replaces outgoing general manager Jeffrey Knueppel. 

Richards will take the helm as SEPTA faces challenges of declining bus ridership, as well as the threat of losing hundreds of millions of dollars now funneled through the Pennsylvania Turnpike Commission with the end of Act 89 in 2022.

PATCO Gets $12.6M Grant To Reopen Franklin Square Station

PATCO has been awarded a $12.6 million grant from the U.S. Department of Transportation to repair, remodel and reopen its abandoned Franklin Square Station located at Race Street between 6th and 7th streets. The station closed in 1979. 

PATCO President and Delaware River Port Authority CEO John T. Hanson said the project will both support and spark growth in the area, which has seen increasing residential and commercial development in the last decade along with the restoration of Franklin Square Park. Construction on the station will begin in fall 2020 and it is slated to open by 2023.

NYC Bus Cameras Catch 1.5K Illegally Parked Cars In 10 Days

New York City’s Metropolitan Transportation Authority (MTA) has launched a crackdown on illegally parked cars through the activation of a new bus-mounted camera system. The 51 bus-mounted cameras installed October 7 on Manhattan’s M15 buses, which run from East Harlem to lower Manhattan, caught more than 1,500 illegally parked cars in the first 10 days of operation.

Warnings are bring issued to drivers during a 60-day grace period. After that, motorists will be fined at a rate that will increase with each offense, starting at $50 and topping out at $250 for the fifth violation within a 12-month period. The MTA, which plans to expand the technology citywide, said the fines will be used for subway improvements.

As noted in CCD/CPDC’s 2018 congestion report, Keep Philadelphia Moving, Center City’s growth in jobs and residents, new tourist destinations, hotels, retail and restaurants has led to an increase in car, bus and truck traffic and a 30% increase in pedestrians since the end of the recession. CPDC, along with the Philadelphia Police Department, expressed support for the addition of traffic enforcement officers to relieve downtown’s worsening congestion, as did 69% of Philadelphians who voted in the May 2019 primary election.

Development News

Low-Rise Residential Building Planned For South Broad

A long-vacant former fast-food restaurant with surface parking on South Broad Street will be demolished to make way for a mixed-use seven-story structure featuring 50 residential units, a roof deck and ground-floor retail.

Plans for the 8,970-square-foot parcel, located at 701 South Broad Street, also feature 25 bike parking spaces and 16 off-site car parking spots.

Apartments Coming To Shuttered Garage Site On North Broad

A nine-story apartment building with 108 units is slated for construction at a site on North Broad Street where a vacant auto-repair shop currently stands, just south of the historic Rodeph Shalom synagogue building.

The development, planned by an affiliate of Philadelphia-based Elk Street Management LLC, would include ground-floor commercial space and an underground garage with 31 parking spots. The development adds to a list of projects planned or underway along North Broad Street between Callowhill Street and Fairmount Avenue involving nearly 1,800 new rental units.

Old City's Painted Bride Building Is Back On The Market

For the third time since November 2017, the Painted Bride Art Center at 230 Vine Street is back on the market. The 14,213-square-foot building is known for its colorful mosaic facade, which a judge has ordered must be preserved.

The property is still garnering interest from developers, nonprofits and others, according to SSH Real Estate, which has the listing. The property is zoned CMX-3, allowing for mixed-use development though it falls within the Old City overlay, which limits the height of new construction.

Economic News

PICA: October Tax Collections Up 11.4% Compared to Last Year

The City collected approximately $253.9 million in General Fund tax revenue in October 2019, compared to $227.9 million in October 2018, an increase of approximately $26.1 million, or 11.4%, according to preliminary figures from the Pennsylvania Intergovernmental Cooperation Authority (PICA). Every tax category saw increases in collections compared to last October except the amusement tax, which decreased by 38.2%.

Year-to-date collections are ahead of last year by 7% through October. PICA reports that the Business Income and Receipts Tax (BIRT) tax rose 44.9%, compared to a projected decrease of -1.2%; the real estate tax rose 1.7%, compared to a projected growth of 0.2%; the realty transfer tax rose 2.8%, compared to a projected 1.4% increase; and the City sales tax collections rose 10.6%, compared to a projected growth of 5.9%.

Amazon Is Building A Homeless Shelter On Its Seattle Campus

Amazon is building a homeless shelter on its Seattle campus that will be run by Mary's Place, a nonprofit advocacy organization. The new 63,000 square-foot shelter is across the street from the prominent glass domes that serve as an Amazon workspace and greenhouse.

The e-commerce giant has offered to pay for the shelter’s utilities, maintenance, and security for the next 10 years in addition to offering its eight floors rent-free. When the new shelter opens in 2020, it will have the capacity to serve 275 people each night and is expected to be the largest shelter in Washington State. About 12,500 people are experiencing homelessness in King County, where Seattle is located.

City Government News

Council Weighs Wage Tax Refunds For Low-Income Workers

City Council’s Finance Committee has voted in favor of a bill that would provide partial city wage tax refunds for low-income workers. Officials say about 51,000 taxpayers would qualify, and the average refund would be $41 per month. Bottom of FormThe bill will now go to the full Council for a vote.

Philadelphia’s wage tax is currently 3.8712% for residents and 3.4481% for nonresidents. The proposed legislation would reduce the wage tax rate to 1.5% for eligible workers. To avoid running afoul of the Commonwealth’s uniformity clause, the tax would be levied at a similar rate for all, with eligible low income residents able to apply to receive partial refunds on the wage tax beginning in 2023, when the 1.5% portion of the tax dedicated to PICA is set to end.


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