Never mind what inning the Philly real estate market's in—will 2015 turn out to be 2007 all over again, with all that follows? The speakers at our Philadelphia 2016 Outlook said no—there's a lot of room for further growth in '16.
Linneman Associates Peter Linneman keynoted the event by noting that it's about time the Fed got around to raising interest rates. Suppose that during the worst of the crisis, he asked, the president had ordered prices for food, autos and rents be set to zero for seven years. "Would they have been seven prosperous years? No. Zero prices don't create economic growth. The price of money shouldn't be zero." Interest rates need to rise closer to what the market sets, not what the bureaucrats at the Fed determine, Peter said.
Our panel speakers then took up the question of how 2015 is different from 2007 for the Philadelphia market. One key difference is that there are healthy capital flows from all around the world, and Philadelphia is grabbing a healthy share of that investor interest. Looking ahead, that influx isn't likely to change, considering the region's strong demographics and job growth. Our speakers included Keystone Property Group CEO Bill Glazer, Trammell Crow senior managing director Jeff Goggins, and King of Prussia District executive director Eric Goldstein.
As a commercial and residential market, Philly is buttressed by pharmaceutical and education sectors, which are massively important to the future of the city and the suburbs, our speakers explained. About a third of new local jobs are in those two sectors, and the number of jobs in them has grown 17% over the last 10 years. So Philly can weather downturns. Also important: in 2004, only 24% of non-native students stayed in Philly. As of 2014, 67% will stay. The speakers also included Amerimar Enterprises CEO Gerald Marshall, MRP managing director Charley McGrath, Dalian Development VP Brady Nolan and CBRE managing director Maureen Anastasi, who moderated.
It's almost a landlord's market in the office sector, our speakers posited. The market is especially short on big blocks of space, both in Center City and the suburbs as well. Technically vacancy rates are high in the suburbs, around 18%, but a lot of that space is obsolete, and harder to convert into residential or hotels, as in the city. Class-A space in the 'burbs, however, is fairly tight. Also, there's been a strong amount of build-to-suit activity in the market. On the whole for office, it's a thumbs-up prognosis. Pictured: 401 N Broad, where the event was held, which is the premier telecom building between Manhattan and DC.
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