Office Sector News: Three Reports Signal Improving Conditions
SSH: Office Vacancy Decreases, Large Available Space Tightening
While rents throughout the Philadelphia Central Business District (CBD) remained stable in 2013, trophy building rents increased, and Class B supply contracted through conversions. This will stimulate an increase in rents throughout 2014, according to SSH Real Estate's 2013 Greater Philadelphia Year-End Office Market Report and Outlook.
SSH counts 44,558,103 square feet (SF) of office space in the CBD in 110 buildings, with an average rental rate of $26.09 and an average vacancy rate of 10.46% at year's end.
The report also notes a limited supply of contiguous space greater than 50,000 SF, with only 11 spaces with 50,000 to 100,000 SF currently available, and only six spaces greater than 100,000 SF available.
Investment sales in CBD office sales totaled approximately 4.5 million square feet with prices ranging from $81 SF to $175 SF. Sales included One and Two Commerce Square, 1500 Spring Garden, and 100 Independence Mall
To read the report, please go to bit.ly/1l5vnpL [PDF].
Integra Forecasts Higher Rents for 2014
Vacancy rates in downtown office towers should go down in all but Class B buildings and rental rates are expected to rise in all classes in 2014, according to the Integra Realty Resources Philadelphia real estate forecast presented on January 23, 2014.
Based on the inventory Integra counts, trophy buildings have a 7.1% vacancy and an average rental rate of $35.87. Class A's vacancy rate is 11.7% with a rental rate of $25.83, and Class B's vacancy is much higher, at 17.4% and a rental rate of $22.31. Class C has a 10.4% vacancy, with a $19.34 rental rate.
In the suburbs, vacancy rates ranged from a low of 6.5% in the Radnor/Main Line submarket, to 31.7% in Blue Bell. Rental rates ranged from $20.81 in Malvern/Southern 202 to $30.01 in Radnor/Main Line.
Urban areas and walkable suburban communities with public transportation should continue to grow, according to the forecast.
To view a PDF of the Power Point presentation from January 23, please go to bit.ly/LimkkE [PDF].
To read Integra Realty Resources' Viewpoint 2014, please go to bit.ly/1em6zVf [PDF].
Flynn Company Notes High Occupancy in Trophy Buildings
The Flynn Company's 4th Quarter Center City Market Update notes that occupancy in trophy office towers hit historic highs at 96.1% by the end of 2013, with rental rates rising above $40 per square foot (SF). This is likely to strengthen rental rates in Class A and B office properties, the report noted.
To read the update, please go to bit.ly/1lq3bOH.
Stock Exchange Building to Be Renovated
Brandywine Realty Trust will begin redeveloping the 456,922 SF 1900 Market Street, known as the Stock Exchange Building, in midyear, and aims to complete the transformation by 2015, the Philadelphia Business Journal reported on January 30.
To see renderings of the proposed new building, please go to bit.ly/1deGvXw.
Report Analyzes Impact of New Comcast Tower
The construction period of the Comcast Innovation and Technology Center is expected to have a total economic impact of $1.7 billion in the City and $2.8 billion in the Commonwealth through its direct and spillover activities, according to a report from Econsult Solutions.
The office, Four Seasons hotel, retail, and restaurant operations in the new center and their spillover activities will create an additional economic impact in the City of $720 million annually and over $1 billion annually in the Commonwealth, and the operation of the new building and its spillover activities are estimated to increase annual tax revenues to the City by $22 million and by $31 million to the Commonwealth, the report noted.
Current Comcast operations create $1.89 billion in expenditures, and employ 5,900 people in the city.
To read the report, please go to bit.ly/1atvd7r.
How Tech Clusters Can Support Economic Development
The Initiative for a Competitive Inner City (ICIC) presented a Tech Webinar on January 23 titled "How Inner Cities Can Increase the Impact of Technology Clusters."
The webinar offers suggestions on how to build and leverage clustered development, ensure urban residents have access to technology, and develop inclusive strategies that train urban residents for new opportunities.
To view a PDF of the presentation, please go to bit.ly/Ly1P4p [PDF]; for a written recap of the webinar, please go to bit.ly/1n3nPjd.
Bills Introduced to Enable Comcast's New Building
At City Council's first meeting of the new year on January 23, Councilman William K. Greenlee on behalf of Council President Darrell L. Clarke introduced a series of bills that will help enable the realization of Comcast's proposed $1.2 billion Innovation and Technology Center at 18th and Arch Street and underground connections to SEPTA's regional rail lines. The bills are: Bill #140003, bit.ly/1avBAHn; Bill #140004, bit.ly/1bmKPnP; Bill #140005, bit.ly/1avAN9t; Bill #140006, bit.ly/1cbhEYT; Bill #140007, bit.ly/1g9cFvm;
Bill #140008, bit.ly/1fbYH97; Bill #140009, bit.ly/1jK9Kay.
Meanwhile, the Philadelphia Business Journal on January 23 reported that Comcast Corporation had purchased an 80% stake in the Comcast Center from CommerzLeasing und Immobilien AG, a wholly owned subsidiary of German-based Commerzbank AG.
To read the article, please go to bit.ly/1fhTAUW.
GPCC Supports Waterfront Development Tax Credit
On January 23, the Pennsylvania House Finance Committee held a public hearing on HB 1461, introduced on May 30, 2013, by Representative Thomas Killion (R., Delaware and Chester Counties). The bill would establish the Waterfront Development Tax Credit Program within the Department of Community and Economic Development to encourage private investment in waterfront property to increase public access to the water, restore waterfront ecology, and spur job creation.
The tax credit would be issued on a first-come, first-served basis and could not exceed 75% of the total amount contributed by the eligible applicant during the tax year, but can rise to 90% if the applicant makes a two-year investment.
Also, the bill provides that the total aggregate amount of all the tax credits cannot exceed $10 million in any fiscal year.
Public Policy Consultant Pam McCormick testified on behalf of the Greater Philadelphia Chamber of Commerce (GPCC) in support of the bill.
To read the bill, please go to bit.ly/1e3567T.
To read GPCC's full testimony, please go to bit.ly/1et5TKc.
Nonmanufacturing Activity Positive for 11th Straight Month
Responses to the Federal Reserve Bank of Philadelphia's January survey of nonmanufacturing firms suggest that activity in the local economy increased modestly in January, the 11th consecutive month the general activity index has been positive.
New orders increased for 39% of the responding firms and decreased for 22%. Employment indicators were strong, with 26.8% of the firms reporting an increase in the number of full-time employers, while only 7.3% reported a decrease.
Over the next six months, 90.2% of the respondents expected business activity to increase while only 2.4% expected it to decrease.
Two Perspectives on Manufacturing Revival
In an article for Forbes.com published on January 30, Joel Kotkin writes that there has been a strong revival in higher-paid blue-collar industries in many of America's cities, and the momentum is building. This blue-collar resurgence seems likely to be more than merely cyclical because the U.S. edge in energy and manufacturing has sparked major new investments by both domestic and foreign producers, he writes. "Overall, since 2010 the number of high-value manufacturing jobs is up 167,000 in the 52 largest metropolitan areas while energy extraction added 50,000 positions," the article notes.
However, in the New York Times Sunday Review of January 26, Steven Rattner writes that the so-called renaissance of manufacturing jobs is in reality a trickle of jobs with low wages and reduced healthcare and pension benefits. In addition, the companies providing the jobs were incentivized by big public subsidies.
"For all the hoopla, the United States has gained just 568,000 manufacturing positions since January 2010 - a small fraction of the nearly six million lost between 2000 and 2009," Rattner writes.
To read "Blue-Collar Hot Spots: The Cities Creating the Most High-Paying Working-Class Jobs," from Forbes.com, please go to onforb.es/1kmxv95.
To read "The Myth of Industrial Rebound" from the New York Times, please go to nyti.ms/1hNXwfJ.
Eds & Meds News
Drexel University Opens New App Development Lab
On January 6, Drexel University opened its new Application Development Laboratory (APP Lab) that will provide space for students to meet with each other, faculty, and external entrepreneurs to collaborate on designing and producing mobile applications, according to Select Greater Philadelphia's newsletter, Momentum.
The APP Lab is housed at Drexel's Expressive and Creative Interaction Technologies (ExCITe) Center at the University City Science Center's 3401 Market Street building, and will serve as a training ground for defining, designing and testing apps in a cross-disciplinary learning environment that encourages creativity and collaborative exploration.
The lab was made possible by a gift from Bentley Systems, the article noted.
To read the article, please go to bit.ly/1cAvG6A.
Residential Market News and Demographic Trends
Downtown Rental Development Surging
SSH Real Estate's 2013 Greater Philadelphia Year-End Office Market Report and Outlook, cited above, notes that investor demand for multifamily product was very strong in 2013, underlined by the $120 million sale of The Granary to Lowe Enterprises of Los Angeles for approximately $524,000 per unit including the retail and parking, the highest per unit price in Philadelphia to date, according to the report.
SSH is currently tracking 22 new apartment projects; if all are completed, these projects could bring over 4,400 new units to market during the next few years. Meanwhile, Center City saw approximately 1,100 apartment units completed in 2013.
To read the report, please go to bit.ly/1l5vnpL [PDF].
Report: City Attracts Millennials, But They Are at Risk of Leaving
A new report from The Pew Charitable Trusts notes that the city's population of 20- to 34-year-olds (Millennials) increased by about 100,000 from 2006 through 2012, but Pew's research revealed that 38% expect to leave at some point in the future because of jobs or career and 29% said they would leave because of the inadequacy of schools, according to the report, Millennials in Philadelphia: A Promising But Fragile Boom. The report contains maps showing the highest concentrations of Millennials in Center City and the surrounding areas.
Other findings from their research and survey: Millennials are nearly twice as likely as older Philadelphians to have bachelor's degrees and are far more likely than other Philadelphians to rent rather than own their homes, with 75% of residents ages 25 to 34 renting, compared with 40% for the rest of the city's population. Only 36% of young adults said they would recommend Philadelphia as a place to raise children, while 56% said they would not.
Greater Center City has excelled in attracting 25-34 year olds, with 28.7% of the downtown population in that demographic, nearly twice the citywide average and more than twice the national average, according to the latest CCD/CPDC report, Pathways to Job Growth.
To read the Pew report, please go to bit.ly/1mCgoiK.
To download Pathways to Job Growth, released in early January, please go to centercityphila.org/docs/CCR14_employment.pdf.
On January 26, an editorial in The Philadelphia Inquirer discussed both reports and pointed directly to the need for tax reform as the primary means of achieving the objective of talent retention. To read the editorial, please go to bit.ly/1imQm2Q.
Citywide House Prices Decline Slightly, Volume of Sales Is Up
House prices declined slightly in the fourth quarter of 2013, but the number of homes sold increased, according to an updated report issued on January 21 by Kevin C. Gillen of the Fels Institute of Government at the University of Pennsylvania. There were 3,351 arms-length transactions in the fourth quarter, the strongest final quarter for home sales since 2009. The median house price in the fourth quarter was $127,000.
There are 6,660 homes listed for sale in Philadelphia, the first time since 2005 that the number of homes listed has fallen below 7,000, the report noted. These homes are selling at the rate of 13% per month, compared to only 5.8% per month during the slump of 2011.
The city's housing stock has recovered 5% of its lost value, suggesting that the house price index needs to rise by 16% more to recover the 21% value lost when the housing bubble burst.
To read the report, please go to bit.ly/1fr6A8M [PDF]. To view the charts, please go to bit.ly/1figbk0 [PDF].
Philadelphia Housing Relatively Affordable
The 10th Annual Demographia International Housing Affordability Survey: 2014, Ratings for Metropolitan Markets, Data for 3rd Quarter 2013 ranks 360 metropolitan markets in nine countries and uses the standard of an affordable house as one that is three times a person's annual salary (called the Median Multiple). The survey found that Hong Kong is the least affordable metropolis in the world, with a median multiple of 14.9, meaning a house would cost almost 15 times a person's annual salary.
Philadelphia's Median Multiple was 3.8, with a median house price of $231,000 and median household income of $61,200. By comparison, San Francisco has a Median Multiple of 9.2. The survey also noted that as housing prices increase, the size of living space decreases.
To read the report, please go to demographia.com/dhi.pdf.
Kmart Leaving The Gallery
Kmart will close stores at The Gallery and 900 Orthodox Street, affecting 289 employees, 120 of whom work at The Gallery location, the Philadelphia Business Journal reported on January 23.
The stores will close in late April and liquidation will begin on February 9, according to the article. The closing, however, will clear the path for Pennsylvania Real Estate Investment Trust to begin renovation of the Gallery.
To read the article, please go to bit.ly/L3FGtZ.
Wash West Supports Market8 Casino
On January 23, the Washington Square West Civic Association announced that the group's board had voted unanimously in favor of Market8's casino/development plan. The group cited the project's focus on encouraging growth and revitalization on East Market and Chestnut Streets.
Market8 has promised annually to invest $1 million in the community surrounding the casino, money that would go to generally maintain and upgrade services, make physical enhancements, and promote the economic vitality of small businesses in the vicinity.
The Provence casino proposed for Broad and Callowhill has announced an analogous arrangement with some of the community groups surrounding that site.
Meanwhile, the Pennsylvania Gaming Control Board held casino suitability hearings for the five proposals for the second Category 2 casino license in Philadelphia, with much attention focused on the issue of how much a second casino anywhere in Philadelphia would draw from attendance at the already existing SugarHouse Casino along the Delaware River waterfront.
Videos of the hearings are on the Pennsylvania Gaming Control Board's website at gamingcontrolboard.pa.gov/?p=193.
To read PlanPhilly's extensive coverage of the hearings, please go to planphilly.com/issues/casinos.
Arts and Culture News
No Action Taken on Boyd Theater
The Philadelphia Historical Commission's committee on financial hardship on January 28 listened to four hours of testimony regarding the demolition of a portion of the interior of historic Boyd Theater to make way for iPic Entertainment's proposed eight-screen Cineplex. No recommendation was made by the committee, but it is expected to meet again before February 14, when the full commission is scheduled to vote on the matter.
To read the article, please go to bit.ly/1d8foNQ.
In other news about the Boyd, the Center City Residents Association Board (CCRA) on January 22 voted not to oppose demolition of the auditorium of the Boyd Theater.
The board heard presentations from iPic and the Friends of the Boyd before making a decision. An important factor in the board's decision was a report from a consultant to the Philadelphia Historical Commission, which concluded that any alternative use was not "economically feasible without significant public subsidies."
A January 30 editorial in the Philadelphia Daily News makes the case that it is time to let development of the Boyd proceed and to reclaim the site with an active, multiplex movie theater use. To read the editorial, please go to bit.ly/1nE8J6H.
City Ranked 5th for Transit
Philadelphia ranked 5th out of 316 cities for transit in Walk Score's new rankings, released on January 28. Philadelphia was awarded a score of 67.
New York was first, with a score of 81; San Francisco was second with 80, Boston ranked third with 75, and Washington D.C. came in fourth with a score of 70.
To read the blog post, please go to bit.ly/1fkxD7z.
Work to Begin on Link Between 1-95, Pennsylvania Turnpike
Construction on a long-anticipated direct connection between I-95 and the Pennsylvania Turnpike is expected to begin in June, The Philadelphia Inquirer reported on January 25.
The project will cost $420 million, but the Delaware Valley Regional Planning Commission (DVRPC) on January 23 agreed to free $155 million to start the project, which will include widening and reconstructing about four miles of the turnpike in Bristol Township where the connection with I-95 will be built, according to the article. The work also will include building three new turnpike bridges and installing the piers for the flyover ramps for the connection.
The Turnpike Commission is providing $54 million and the remainder of the $155 million is coming from federal money.
When the first stage of the direct connection is completed in 2018, I-95 will be rerouted onto the Pennsylvania Turnpike east of the connection and then onto the New Jersey Turnpike, the article noted.
To read the article, please go to bit.ly/1f7LkWT.
To view the fiscal year 2014 Planning Work Program for the DVRPC for the period ending June 30, please go to bit.ly/1lkpYLP.
To view a draft of the DVRPC Work Program for July 1, 2014, to June 30, 2015, please go to bit.ly/1b1HDRz [PDF].
City Will Update Lighting
PennDOT on January 29 announced that $8.8 million in Automated Red Light Enforcement (ARLE) funding will be distributed to 24 municipalities statewide to fund 32 safety projects.
The City of Philadelphia will use $850,000 of the recently released ARLE funding to assist in the development of a street-light improvement program by upgrading to LED technology. Total cost of the project is approximately $3.4 million. This project will update the existing lighting from 12th Street to 17th Street, from Race Street to Walnut Street.
For more information, please visit dot.state.pa.us and search "Automated Red Light Enforcement" or email ARLE_Grants@pa.gov.
Parks and Open Space News
Update on Rail Park
The Design Advocacy Group (DAG) will meet Thursday, February 6, at 8:00 a.m., at the Center for Architecture, 1218 Arch Street.
From 8:00 a.m. to 8:30 a.m., Friends of the Rail Park board members Leah Murphy and Aaron Goldblatt will give an update on what's next for the proposed Reading Viaduct project. Phase 1 of the Rail Park, a half-mile stretch situated in the Callowhill and Chinatown North neighborhoods, managed by the Center City District, is slated for construction in the next year. Plans developed by Central Philadelphia Development Corporation can be viewed at centercityphila.org/about/viaduct.php.
In an article titled "When will construction start on Phase 1 of the Rail Park?" PlanPhilly reports that the project will cost about $8.5 million and construction likely will not start before mid-2015, as the project's financing is not fully in hand. To read the article, please go to bit.ly/1emL8Ug.
During the second part of the DAG meeting, from 8:30 a.m. to 9:20 a.m., Kevin Gillen and John Westrum will present their findings about the effect of the tax abatement on Westrum's development in Brewerytown.
Gridlock on AVI Appeals
Tom Ferrick, Interim Director and Editor of Axis Philly, an online news website, writes about the problems the City is facing in processing the 24,000 appeals generated by the new residential tax bills generated by the Actual Value Initiative.
About 5,000 homeowners have filed "non-oral" appeals in writing and do not require a formal hearing, but still need a ruling from the board, Ferrick writes, while another 19,000 have requested a hearing before the board—and are entitled to one under the law.
The Board of Revision of Taxes (BRT) began hearings in January at the Curtis Center. "No one is expecting them to be done anytime soon," he notes.
To read the article, please go to bit.ly/1eAZpsK.
L&I Launches New Database System
Mayor Michael A. Nutter on January 29 announced the launch of Project eCLIPSE (Electronic Commercial Licensing, Inspection and Permit Services Enterprise), the new database system for the Department of Licenses and Inspections (L&I).
Project eCLIPSE will increase the technical capabilities of L&I, including expanding online functions, improving data sharing between City departments and making the inspection process more efficient.
The mayor indicated that the new technology should ease the application, permit and payment processes.
Nearly every service that L&I provides will be offered online, including permitting, plan review, license application and renewal and payment options, the press release noted, and should reduce wait times.
To read the press release, please go to bit.ly/1a84a0Y.
Tax Revenues Up Slightly in FY14
Tax revenues for December totaled $185.4 million, a 4% decrease from December 2012, according to the Office of the City Controller's Financial Forecast & Snapshot for December 2013.
While wage, earnings, and net profit taxes were down 4% in December over the final month of 2012, total fiscal year 2014 (FY14) revenues in this tax category were up 2% over the same period in the previous fiscal year.
The report also looked at employment and determined that there were an estimated 63,800 Philadelphians considered unemployed in November and there were 32,934 advertised online job openings in the city.
To read the report, please go to bit.ly/1ee8X0v [PDF].
Governor Will Present Budget
Governor Tom Corbett will present his 2014-15 State Budget to the General Assembly tomorrow, Tuesday, February 4.
While analysts are predicting a short-term surplus of approximately $232 million once December's year-end revenue totals are reconciled, Budget Secretary Charles Zogby indicated that the Commonwealth is looking at a structural budget deficit as high as $1.4 billion – and possibly higher, the Greater Philadelphia Chamber of Commerce (GPCC) reported.
Major costs include $610 million for pensions, $600 million for medical assistance increases, $56 million for debt service, and $140 million for corrections.
Budget Secretary Zogby will address the chamber's State Legislative and Tax Committee on February 20 from 2:30 p.m. to 3:30 p.m., and discuss the FY2014-15 State Budget in more detail.
The Future of All Things Transportation
On Thursday, February 13, at 6:00 p.m. in Meyerson B-3, Penn Design will present Rina Cutler, Al Biehler, and Megan Ryerson, who will discuss the future of all of Philadelphia's transportation systems and modes.
How can SEPTA serve more Philadelphians? How will the USAir-American Airlines merger affect the future of the Philadelphia Airport? When will bike-sharing come to Philadelphia? Are autonomous vehicles the solution to traffic jams?
'ARTiculture' is Theme for PHS Flower Show
The Pennsylvania Horticulture Society's annual flower show will open on Saturday, March 1, and close on Sunday, March 9, and will feature the theme "ARTiculture" at the Pennsylvania Convention Center. The Preview Party will be held on the evening of Friday, February 28.
Below are the show's schedules.
PHS members preview: Friday, February 28, 12:00 p.m. - 3:30 p.m. and Saturday, March 1, 8:00 a.m. - 11:00 a.m.
Open to the public: Saturday, March 1, 11:00 am - 9:00 p.m.; Sunday, March 2 and Saturday, March 8, 8:00 a.m. - 9:00 p.m.; Monday through Friday, March 3-7, 10:00 a.m. - 9:00 p.m.; and Sunday, March 9, 8:00 a.m. - 6:00 p.m.
General admission tickets are $27 for adults, $20 for students, and $15 for children. Tickets, special packages, and group deals are available at theflowershow.com/show-info/tickets/.
The black-tie Preview Party will be on Friday, February 28. Enjoy cocktails and sumptuous fare, be amazed as BANDALOOP performs and be dazzled by the displays – the entire Party takes place on the Show floor, where top prizes will be awarded. Tickets for the Preview Party range from $200 for young subscribers to $10,000 for a table of 10. For party tickets, please go to bit.ly/1i4zePt.