Positive news for Greater Philadelphia going into 2020 includes job growth, a growing population of young people, strong demand for apartments, and a booming, new biotechnology business, said panelists at ULI Philadelphia’s 20th Annual Real Estate Forecast.
“This crowd is way more optimistic than the nation,” said Mitch Roschelle, partner and business development leader for PricewaterhouseCoopers. He presented the data from the Emerging Trends in Real Estate® 2020 report, copublished by ULI and PwC.
“We are showing no signs of letting up just yet,” said Lauren Gilchrist, senior vice president and senior director of research for JLL Philadelphia, presenting her localized outlook on Philadelphia real estate to the crowd.
Philadelphia’s Development Boom Continues
The Philadelphia district council of ULI held the event at a new larger setting at the Westin Hotel. Even with the extra space, the room was packed. Well over 600 real estate experts attended—about 100 more than 2018.
Using a real-time polling tool, more than half (54 percent) of the attendees feel that the prospects for profit growth for next year are stronger now than the prospects for growth were a year ago, according to a survey of the crowd.
That is very different than the results from ULI’s Emerging Trends report, which surveyed 2,200 real estate experts over the summer. More than half (54 percent) of respondents said that the prospects for growth had not changed since the year before. Only a quarter (23 percent) thought that the prospects for growth had weakened. Another quarter (23 percent) thought the prospects for growth had strengthened.
“You folks are way more optimistic than the national pool . . . or something has happened since the summer,” said Roschelle.
So far in 2019, a growing number of economists have lowered their projections for the U.S. economy in 2020. Trade wars and disputes between the United States and several of its largest trading partners and uncertainties such as whether the United Kingdom will leave the European Union have clouded the outlook for the economy.
“The recession word was used like crazy over the summer,” said Roschelle. Those fears have not yet materialized. The U.S. economy grew 1.9 percent in the third quarter of 2019, according to the first reading of gross domestic product growth.
Perhaps because of this volatility, investment has continued to flow into real estate overall. “We are in volatile times,” said Roschelle. “Property has proven to be the ultimate hedge against volatility. . . . Notwithstanding the fact that all of these things are going on right now, people are more interested in real estate now than ever before.”
This year’s Emerging Trends report positioned Philadelphia among the “Markets to Watch” and as a “Stalwart, Surprise, and Determined Competitor” characterized by a track record of capital inflows and recent evidence of solid transaction volume.
The economy in Philadelphia continues to produce new jobs. “The jobs numbers in the city and the region are overwhelmingly positive . . . perhaps less so in Southern New Jersey,” said Gilchrist.
Demographics are helping Philadelphia grow. “We have the highest growth rates of 18- to 34-year-olds of the Top 10 Cities,” said Gilchrist. “There might be some question of whether young people are leaving cities. In Philadelphia, that is not the case.”
In addition, Philadelphia’s economy is developing a new specialty in its growing biotechnology industry. “We are at record levels for venture capital investment in this space,” said Gilchrist. “The deals are getting bigger and there are more of them.”
More than 30 cell and gene companies in Philadelphia have raised more than $1 billion in venture capital in the last 18 months, supporting more than 3,000 jobs. “I didn’t think it would actually come this fast,” said Jeff Marrazzo, cofounder and CEO of Spark Therapeutics, based in Philadelphia.
Apartments in Demand
Developers have been building a tremendous amount of new apartments over the last few years. However, even more new renters have appeared to sign leases and move in.
“It is surreal how much construction we have had,” said Gilchrist. “However, we are absorbing more class A apartments in Philadelphia than we are able to deliver on a quarter-over-quarter basis. Over the last two years, the percentage of occupied apartments has risen to 94 percent from 90 percent,” said Gilchrist.
“If you are a multifamily developer, you do have to be concerned about cost of labor,” said Gilchrist. But she added, “You don’t have to be concerned about demand.”