Philly's Suburban Growth Sticks To Established Areas And Formulas For Success
The health of commercial real estate in Philadelphia’s suburbs remains a powerful counterpart to its downtown markets, largely driven by mixed-use communities and strong office submarkets, but its continued health will likely depend on transit.
Conshohocken and Main Line suburbs like Ardmore have dense development areas surrounding their train stations, and even as King of Prussia gains value in office and multifamily, the former two areas remain the cream of the crop as public transit becomes a greater component of workers’ lives.
“I think we’ve doubled the amount of train riders in our [Conshohocken] buildings in the last two years,” Oliver Tyrone Pulver Vice President of Marketing Esther Pulver said. “[Reverse commuting] is going to increase in a pretty big way. The lines have added trains to the schedule and added cars to the trains. I don’t think transit is going any other direction.”
For years now, the real estate community has debated whether urban-oriented millennials would move back to the suburbs at the same rates as previous generations, but in the Philadelphia area, the sheer number of major companies with headquarters in the suburbs seems to have answered the question already.
“The eastern part of Montgomery County has seen school district enrollments are going up,” Montgomery County Planning Commission Executive Director Jody Holton said. “We know that young families are moving in, and not just into new housing stock, but turnover in more traditional suburban communities that are already walkable.”
There is no new-development boom in the suburbs like there is in the city, as a sizable portion of development, especially in multifamily, has been in value-add renovations in areas with established fundamentals. With an area as old as Philadelphia, there just is not much undiscovered country that can support new construction.
The massive exception to both transit dependency and redevelopment is King of Prussia, where the Village at Valley Forge and the King of Prussia Town Center have seen successful beginnings as new developments, and the King of Prussia Mall has exactly zero vacant stores within it — all without the benefit of a train line. Like Conshohocken, its biggest advantage is its position at the nexus of two highways. An extension of the Norristown line to the mall is in the works, but years away.
“I think the rail is going to be great for King of Prussia, but I think it’s thriving regardless,” Bozzuto Development Manager Pete Sikora said. “You’ll definitely see some increase in development activity along the rail line, but it’s already booming right now and the line is way out in the future.”
King of Prussia is seeing more growth in its office properties than ever before thanks in part to Bozzuto’s Village at Valley Forge, with its two multifamily buildings Indigo 301 and age-restricted Canvas, but mainly insofar as it combines with the nearby retail offerings to create the newest urban-style node in the Philly suburbs, according to Sikora. Rather than lead to an office boom, it has caused increased rent in the submarket and investor interest in its older business parks, which will get two stops of their own on the rail extension as currently planned.
“The vacancy rates [at the office parks] had been a little soft, and it had been cause for a little concern,” Holton said. “So [the MCPC] looked at those parks and thought about what we could do to make them more valuable, and one of the biggest things is transportation access.”
If King of Prussia is leading the conversation now, then the question is where the buzz will go next. According to Holton and Pulver, redevelopments of large industrial parks into mixed office and light industrial have enormous potential if they are near transit. Ambler Yards, less than a mile from a train station, is garnering sizable interest, and is the first Benjamin’s Desk (soon to be 1776) suburban location. The 1M SF Merck facility near North Wales is undergoing a similar transformation, and the former Dow Chemical site in Upper Gwynedd has been reborn as the Spring House Innovation Park.
“The last I heard, they had a tenant for 50K SF and they were working on another lease that might be about the same size, so that’s not bad for having just opened,” Holton said. “We see more and more development proposals for office, and [Spring House] is a good example of the reuse of a big corporate campus.”
Redeveloping on previously established corporate centers, especially near transit, is a more sustainable form of development than speculation, which has led to confidence all around that Philly’s suburbs will remain robust into the future.
“On the whole, tenants are staying in the suburbs and growing there,” Pulver said. “Vanguard was a prime candidate to put a lot of employees downtown, but they’ve doubled down on the suburbs and are building a facility for 1,500 employees in Malvern. Newer companies, pharma groups and healthcare groups seem to be setting up shop in the suburbs, and they’re having no problem finding employees — and that’s the key.”
This and more will be discussed at Bisnow's Strength of the Philly Suburbs event Feb. 15.