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, presentingher localized outlook on Philadelphia real estate to the crowd.
Philadelphia’s Development BoomContinues
The Philadelphia district council of ULI held the event at anew larger setting at the Westin Hotel. Even with the extra space, the room waspacked. 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 arestronger now than the prospects for growth were a year ago, according to asurvey of the crowd.
That is very different than the results from ULI’s Emerging Trends report, which surveyed2,200 real estate experts over the summer. More than half (54 percent) ofrespondents said that the prospects for growth had not changed since the yearbefore. Only a quarter (23 percent) thought that the prospects for growth hadweakened. Another quarter (23 percent) thought the prospects for growth hadstrengthened.
“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 loweredtheir projections for the U.S. economy in 2020. Trade wars and disputes betweenthe United States and several of its largest trading partners and uncertaintiessuch as whether the United Kingdom will leave the European Union have cloudedthe outlook for the economy.
“The recession word was used like crazy over the summer,” saidRoschelle. Those fearshave not yet materialized. The U.S. economy grew 1.9 percent in the thirdquarter of 2019, according to the first reading of gross domestic productgrowth.
Perhapsbecause of this volatility, investment has continued to flow into real estateoverall. “We are in volatile times,” said Roschelle. “Property has proven to be the ultimatehedge against volatility. . . . Notwithstanding the fact that all of thesethings are going on right now, people are more interested in real estate nowthan ever before.”
Localized Optimism
Thisyear’s Emerging Trends reportpositioned Philadelphia among the “Markets to Watch” and as a “Stalwart,Surprise, and Determined Competitor” characterized by a track record of capitalinflows and recent evidence of solid transaction volume.
The economy in Philadelphia continues to produce new jobs. “Thejobs numbers in the city and the region are overwhelmingly positive . . . perhapsless so in Southern New Jersey,” said Gilchrist.
Demographics are helping Philadelphia grow. “We have thehighest growth rates of 18- to 34-year-olds of the Top 10 Cities,” said Gilchrist. “There might besome question of whether young people are leaving cities. InPhiladelphia, that is not the case.”
In addition, Philadelphia’s economy is developing a newspecialty in its growing biotechnology industry. “We are at record levels forventure capital investment in this space,” said Gilchrist. “The deals are getting bigger and there are moreof them.”
More than 30 cell and gene companies in Philadelphia haveraised more than $1 billion in venture capital in the last 18 months,supporting more than 3,000 jobs. “Ididn’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 beenbuilding 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.”
