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2017 Looks Great For Philadelphia, But Trouble Looms Beyond

The specter of Donald Trump’s unpredictable presidency casts an uncertain shadow over all 2017 prognostications, but in the immediate future, the Philadelphia commercial real estate market looks to continue its strong 2016.


Bisnow’s Philadelphia 2017 Forecast event at 6232 Market St started with a joint keynote address by Linneman Associates principal Peter Linneman (above, left) and Walker & Dunlop CEO Willy Walker, which gave some sobering insight into the state of the economy and why there has been such a sizable shift toward renting as opposed to homeownership.

“People do not have the money to make a down payment on a single-family home,” Walker said. “Period, end of statement.”

One of the main sources of that lack of savings is student loan debt, which, at $1.3 trillion, is more than US credit card debt and auto loans combined. That revelation produced an audible reaction from the crowd, which is understandable—it’s an income drain that didn’t exist for older generations, who made up most of the crowd.

To combat this problem, the Federal Reserve has artificially suppressed interest rates for years, which should cease if the incoming administration is as business-friendly as most assume. But while corporations and executives may be eagerly anticipating the change, it will only serve to further depress the single-family market.

“There’s this incredible cohort of young Americans who have flat wages and student debt who can’t afford a down payment,” Walker said. “Now you add to that rising interest rates, so mortgages will cost them more, and rising fuel costs, and they still don’t have the money to buy a single-family home.”

The interest rate increase is one of the few economic changes people are willing to predict with any certainty from the Trump administration. But the stock market has risen since Election Day anyway, based on a more generalized sense of optimism for deregulation.

“We don’t know any regulatory reforms that are coming in the Trump administration,” Walker said, “but we know the regulatory environment will change dramatically. That we know.”

That optimism may be jumping the gun. Linneman reminded everyone that the stock market jumped 8% between Ronald Reagan’s first election win and his inauguration day, only to fall 20% by the end of the year as his economic policy took time to implement.

“Any major legislative effort on trade deals, taxes or the budget take a lot of time and effort,” he said.

Major delays could come not just from the slowly turning wheels of government, but from a Congress that, while Republican like the president, will have priorities beyond government.

“If Congress gets bogged down in Obamacare,” Linneman said, “they aren’t going to get to much more. Remember, a third of the Senate and 100% of the House begin their campaign 14 months after they’re sworn in. So they have 14 months to ‘get off the beach' [a la D-Day]. And the beach is Obamacare.”


Before any of that can even begin to happen, a good chunk of 2017’s first quarter will have already passed. While Trump-based uncertainty is well warranted, Philadelphia CRE looks to keep chugging along for now, as the main panel discussed.

“There was a lot of talk of recession fears at this time last year,” said LEM Capital partner David Lazarus (above, second from right). “That has not materialized. I think it’s been slow and steady, and it seems like we could get a bit of a boost going forward as well.”

The multifamily market, boosted by Millennials’ relative lack of finances to own homes, remains robust even as Class-A buildings keep going up in Center City. Demand and absorption rates remain consistently strong, with no signs of slowing.

That strong inflow of residents to Center City has driven growth in retail as well, with an influx of national retailers beginning in 2016 slated to continue in 2017. Brickstone Realty president John Connors (above, second from left) noted that a recent project of his company’s, The Collins on the 1100 block of Chestnut Street, was developed for the purpose of the street-level retail, rather than the apartments above it. The Target there has outperformed all of their expectations, he said.

“We believed that large-format retail had to come back to Center City," Connors said. “There were just too many retailers that weren’t present, and it seemed obvious they had to come back.”

A common refrain this year, and one that looks to continue, is the wide gap in terms of the quality of Class-B multifamily housing, which gets older and less appealing every year, and all the new Class-A housing. BB&T Bank SVP Maureen Hobson (above, third from left) noted that there remains a “huge demand” for renovated, Class-B apartments.

Like multifamily, industrial remains a very strong market in Philadelphia, driven largely by e-commerce’s need for distribution centers, but one sector already feeling the weight of a Trump presidency is healthcare. The imminent threat to the Affordable Care Act leaves providers understandably cautious and unwilling to commit to large-scale projects.

“When it comes to healthcare development, the impact is coming from uncertainty,” said Trammell Crow senior managing director Jeff Goggins (above, third from right). “In the healthcare real estate market, it’s a negative.”


Consolidation and acquisition among healthcare providers had already slowed down development, as companies anticipating mergers have been reluctant to mess with their balance sheets.

“Whether it’s Penn or CHOP or Jefferson, the consolidation has been dramatic,” Goggins said. “And that takes care of all the mid-tier and lower-size systems…So we’ve seen kind of a lull in big capital programs, and I think it’s only going to get worse now because of the uncertainty going forward.”

All of this puts the real estate market in a strange place, where most demographic factors point to a strong immediate future in Philadelphia, but with political realities threatening to throw a wrench into the works. The panel mainly reconciled that conflict by downplaying how much Trump can affect.

“I don’t see [massive trade rules change] happening,” said MRP Realty founder Bob Murphy (above, far left). “I think NAFTA is here to stay. Maybe it gets tweaked a little bit.”

“The great fear is that you have inflation without a lot of job growth,” Lazarus said. “As far as mass deportations of immigrants, I just don’t see it happening.”

“Most of the changes that have been proposed will take a while to even be debated based on the legislative process,” Hobson said, although she warned about executive orders, which can be used to levy tariffs.

“I just don’t want to see a tariff war [with China] on Twitter,” Maureen joked (mostly).

Still, when asked to give one-word answers about their forecasts for Philadelphia’s future, most responded with “steady” or “solid.” Even with the dark clouds possibly gathering, developers are willing to bet that Philly can weather a storm.