Nine Trends to Watch in 2014
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Before everyone hits the egg nog, we asked some local commercial real estate experts whereÂ they see Philadelphia headedÂ in the New Year. (Biggest lesson of 2013: if you're trying to keep a deal secret, hire Beyonce's PR person.)
1) Even stronger retail in Center City
The shopping and dining experience in Center City is keeps getting better, MSC VP Jacob Cooper tells us. Both downtown and in University City, the multifamily boom is bringing vibrant activity that's sustaining both local and national retail options for a diverse population. He's also encouraged by the rebirth of corridors in East Passyunk, South Street West, and Spruce Hill, where zoning code reforms have given community groups a bigger role in redevelopment. However, vacancy rates will lag somewhat as the swift pace of new construction will take time to saturate.
2) A push from boutique retailers
National retailers are moving in to both Walnut and Chestnut Streets west of Broad. Chestnut West alone will see American Eagle, Nordstrom Rack, and the MSC-brokered Uniqlo open in 2014. But the push for chains doesn't spell the end for boutiques, says Jacob. (Good. If artsy boutiques that sell those "Coexist" bumper stickers couldn't learn to get along, we'd all be doomed.) Walnut Street has had a presence of chains (like Ann Taylor and Jones New York, above) for over 30 years. Smaller home-grown retailers are, in fact, beginning to thrive in the high-vacancy Chestnut East corridor and Locust Street, and even Joan Shepp is still in Center City (although a block from her longtime post on Walnut).
3) Big changes at the Piazza at Schmidt's
The Northern Liberties property's new ownership, controlled by NYC's Kushner Companies in a partnership with Oaktree Capital Management, hopes to inject some new blood into a development that revolutionized the neighborhood when it opened, but whose retail scene has been underperforming. Developed by Bart Blatstein and Tower Investments, the Piazza portfolio, with over 400 apartments and 100k SF of retail, is valued at $130M.
4) A bigger focus on suburban office hubs
Keystone Property SVP Rich Gottlieb is confident in Philly's suburban office hubs and will have more to say at our first annual Future of the Suburbs Summit on Jan. 15. (He's snapped here, right, at Klehr Harrison's holiday party last week, with Keystone's Tom Hartley, Steve Kosloski, Aimee Alexander, and CEO Bill Glazer.) In 2014, Rich expects more companies will be announcing build-to-suits and moving out of older buildings. In doing so, they're seeking creative ways to maximize space per employee and locate near important highway and transit lines. And expect vacancies tightening in the burbs, which are getting new appreciation from investors and attracting growing city businesses; as an example, Rich points to Keystone's recent 74k SF lease with Destination Maternity at the Moorestown Corporate Center.
5) Transformation in Market East
While it likes the 'burbs, Keystone isn't shunning Center City: In October, the company purchased its first Philly property, the Dow Chemical building on Independence Mall, for $40M in a partnership with Mack-Cali and Parkway Corp. Rich looks forward to upgrading, which will include parking and restaurant space, as part of what he sees as the transformation of Market East. Possible things to look for: new tenants at the Gallery, approval of the MARKET8 casino, or changes at the Convention Center.
6) Planning ahead for west of Broad vacancies
Filling office space west of Broad will be one task ahead. The BNY Mellon Center will have several key vacancies in 2016, when Sunoco plans to move to a new HQ in Newtown Square, and FMC Corp moves into Brandywine's Cira Centre South (rendered here) after it rises on the Schuylkill. On the other hand, 2013 did see one big-name company, Delaware-based Axalta Coating Systems, announce its move to Two Commerce Square, which Brandywine closed on last week with One Commerce Square for $332M. (It's the world's slowest game of musical chairs.)
7) Continuing multifamily momentum
"Brokers' pipelines are full right now," says Rittenhouse Realty Advisor's Ken Wellar. "There's a lot of momentum that should carry on into the new year." (Ken, third from right, joins colleagues at RRA's launch party in April: Mark Duszak, Corey Lonberger, David Greenhalgh, Robert Marzullo, and Doug Emrich.) Multifamily rents should continue their small-but-steady increases around 3%, and developers will find more amenities to value-add, be they gyms or doormen or dog parks, to suit the tastes of Millennials. (Get ready for doggy doormen--which are humans that watch doggy doors, not dogs that watch human doors.) And while demand for condos may not match the pre-recession hype, it will slowly find its way back into the market.
8) More institutional and out-of-town multifamily investors
One signifier of the market's strength is a jump in institutional buyers and especially out-of-town investors acquiring new product, says Ken. Along with the Piazza, the prime multifamily deal of 2013 was the sale of the Granary in Logan Square for a reported $120M to LA-based Lowe Enterprises. Developed by Pearl Properties, the 229-unit apartment building just finished construction and features 20k SF of retail space, which includes a pizzeria by Marc Vetri.
9) High demand for eds
With a strong eds and meds presence, Philly's student housing is in high demand. While University City gets most of the spotlight, Ken's also keeping an eye on Temple University (where the $216M, 1,275-bedÂ Morgan Hall opened to students in the fall). Earlier this month, RRA arranged a sale of a 116-bed portfolio, 100% occupied and new product near the Temple campus, for $6.9M. Much like with University City across the Schuylkill, look for Center City to strengthen its ties to Temple, with the North Broad corridor bridging the gap.