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Supply & Demand

by Rachel Vigoda

Philadelphia has been getting a lot of national attention in recent years, and it isn’t just drawing in the tourists who want to snap photos of the Liberty Bell. People are also seeing the region as a place to stick around.

“Philadelphia is becoming a cool place to live,” says realtor and developer Noah Ostroff, the founder and chairman of Philly Living. “It’s won a lot of national recognition over the last year or so. The pope coming to town, the Democratic National Convention, being nominated as a World Heritage City, the upcoming NFL draft. ... There are a lot of good things happening.”

Ostroff points to activity like Comcast’s second tower in Center City, a 60-story, 1,121-foot skyscraper, and, the Schuylkill expansion at Children’s Hospital of Philadelphia, both of which mean more jobs. New restaurants are opening and national retailers are setting up shop locally. ... “They see that people want to live here, that they want to spend money here,” he says.

Corey Lonberger, managing partner at Rittenhouse Realty Advisors, also mentions the Comcast Innovation and Technology Center. “There is a lot going on in Philadelphia with job growth,” he says. “Comcast adding another tower, and potentially a third, will add an enormous amount of renters to our market. [And] what’s going on in University City is amazing. The amount of jobs coming online will impact the Philadelphia apartment market in a very positive way.”

Lonberger says there isn’t a better market to be investing in right now than University City, though he does expect continued growth in Center City’s fringe neighborhoods, like Fishtown, Brewerytown and Francisville.

Those latter two are getting a boost from the development along North Broad Street, adds Ken Wellar, also a managing partner at Rittenhouse Realty Advisors. Wellar thinks we’ll keep seeing redevelopment of older buildings on North Broad, as Temple University continues its push to connect to Center City.

“Philadelphia has continued to be a better place every year for the last 15-plus years, but now it’s really getting a spotlight,” says Ostroff. “And I think the pace at which it’s getting better has increased. The number of new high-rises that are being built right now, it’s the most we’ve seen here.”

But just because people want to live here doesn’t mean there are homes for them.

Inventory levels are the lowest that they’ve been in more than a decade, Ostroff says. He’s seeing bidding wars and buyers not being able to find the properties they want. Sellers are raising prices because they can.

“Rates are low, I think it’s going to be a sellers’ market, and I think it’s going to be a very good spring for real estate,” says John McAneney, a partner at the Fort Washing- ton-based law firm Timoney Knox. His focus is on the suburbs, primarily in Montgomery County.

“We’re seeing a lot of pockets of demand. If you’ve got a house in the right area, you can get your asking price in a couple of days. Talking to local realtors, it’s an inventory issue—there aren’t a lot of homes for sale,” McAneney says. “The fact that there are fewer existing homes helps the developers, because if there’s not enough inventory and buyers don’t have enough to look at, they’re going to gravitate toward a new home, even if it wasn’t something they initially thought they could afford.”

Real estate developer and City Councilman Allan Domb says that in the condo world, it’s the larger products—the two- and three-bed- room properties—that are most in demand. “We’re going to see the construction of the smaller apartments slowing down a bit, because we’ve built quite a few,” Domb says, referring to studios and smaller one-bedroom units in Center City, as “river to river.” Of the 5,000 units that have been built in the last two years, he says, 95 percent are studios and one-bed- rooms under 1,200 square feet, with many under 700 square feet.

But, Domb adds, “the demand is on the way,” pointing to the new Comcast tower and activity at CHOP and the Hospital of the University of Pennsylvania as examples. “With all those new jobs, 14,000 new jobs in the next few years, the demand will catch up to the sup- ply,” Domb says.

It’s a different scenario when it comes to housing for the baby boomers. “No one’s really building a lot of product for the baby boomers, but the trend should be to build more for [them],” says Domb, “because once they move into the city, they’re not moving out. They’re staying here forever.”

Boomers prefer the core areas of the city, where they can walk to the office, plus restaurants, theaters and shops, while the other population segment to watch, the millennials, go for the surrounding neighborhoods, says Domb: Francisville, Brewerytown, Fishtown, East Kensington, Point Breeze, and, next up, Mantua.

In recent years, Philadelphia has seen the largest increase of millennials of any major U.S. city, as measured by the change in their percentage of each city’s overall population, according to the Pew Charitable Trusts’ 2014 “Millennials in Philadelphia” report, with the local population of 20- to 34-year-olds increasing by 100,000 from 2006 through 2012. To go with that impressive number, more than 50 percent of local college graduates who aren’t from Philadelphia are now staying in the area, Domb says. “Fifteen years ago it was 24 percent. That’s a huge statistic, in a positive direction.”

And those recent grads definitely want to be downtown. “I’ve sold a lot of properties— over 37,000 condominiums since 1980—and I don't know one millennial who’s said to me, ‘I can’t wait to move to Wayne’,” says Domb.

Within the city, the 10-year tax abatement, which allows owners to push off paying city taxes on new construction or property improvements, has been a major factor in spurring growth. “It’s why the city of Philadelphia since 1999, adjusted for inflation, has had positive housing starts of 166 percent, while the surrounding counties have had a negative, adjusted for inflation, minus-five to minus-42 percent housing starts,” Domb says. “We are killing it in the city.”

What the city still needs to do, Domb says, is offer an even bigger incentive in the areas where houses are under $250,000. “These incentives improve neighborhoods, they stop blight. When we don’t do anything in a neighborhood that’s run down, and we then go in and build low-income housing, that costs in the neighborhood of $400,000 a property. Which makes no sense when you can offer incentives to the private sector to develop,” he says.

Looking at it from the investor angle, Ken Wellar of Rittenhouse Realty Advisors predicts that development will continue for apartments but new permits will slow down toward the end of the year, though investors from other markets, like New York and Washington, D.C., “will continue to look for product in Philadelphia to chase yield.

“There are still good opportunities in Philadelphia to focus on, including many adaptive reuse buildings prime for redevelopment,” Wellar says. “There are also good opportunities in areas outside of the core center business district—development continues to expand to the north, south, west and east. I believe we will see more startup companies continue to move into the city, creating new jobs. Developers from other markets will continue to look at Philadelphia as a value play.”

When it comes to commercial development farther out, Richard Gottlieb, senior vice president of operations and development at Keystone Property Group, thinks we’re going to start seeing more activity in the suburbs. Keystone owns and operates properties in multiple U.S. markets, including the mixed-use Curtis building at Sixth and Walnut in the city, where apartments will be opening this year.

“On the office side, everyone’s been so focused on Center City, and I think that area will continue to prosper, but we can expect more good things in the suburbs,” Got- tlieb says, mentioning Bala Cynwyd and King of Prussia as examples of areas with a lot of activity, like new retail and new apartment units. “You’re getting a liv- ing product that appeals to a new set of people; it’s not just the single-family homes you think of in the suburbs,” he says.

Existing office buildings are being adapted to meet modern requirements, while maintaining a traditional appeal. “Everything old is new again,” Gottlieb says. “There is a large percentage of companies who prefer older buildings. They want the exposed brick, the interesting character, not just a glass box.”

Companies today also want amenities that weren’t anywhere on the list of must-haves when the building went up 50, or even 25, years ago. Unsurprisingly, places to exercise and places to eat are both in demand. When you put a restaurant, or a beer garden, in the first floor, it makes the building more attractive, Gottlieb says. “It gives it a positive energy.”

But what’s really giving the city a positive energy is that under-construction Comcast tower everyone’s talking about. “It’s going to be filled with professionals,” Gottlieb says. “Smart, well-paid people who will spend money in Philadelphia, as well as probably live here, which is going to be very good for the overall economy in the city.”

Published (and copyrighted) in Philly Biz, Volume 2, Issue 2 (February, 2017).
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