Philadelphia Office Market Analysis

Philadelphia Office Market Analysis

Downtown Philadelphia -- Analysis of the Office Market of the Central Business District

Recently, the city of Philadelphia has garnered considerable national attention in the national media. This is partly due to the fact that the Philadelphia schooled and owned colt named 'Smarty Jones' has dazzled the eyes of racetrack spectators and betters all over the nation. This prospective winner of racings illustrious Triple Crown makes the old city of Philadelphia as a whole seem, if not glamorous, then at least a city that is showing a newly marketable face to the nation.

Philadelphia resurgence in the Central City Business District has been predicted since the early 1990's. But, from an office owner's real estate oriented perspective and vantage 2004, is Philadelphia a 'good bet'? What about specifically regarding office space targeted to that of the horary perspective of the legal profession? Would the purchase of a small, Class A office property that would hold a law office and/or some other prospective office tenants be a wise real estate investment? Does the market data back up the status of rhetoric in the popular media regarding the city's central business district, or 'CBD'? "Philadelphia has always been an underrated market," said Arthur Fefferman, president of New York-based AFC Realty Capital, predicting the city's resurgence. Does this analysis of the previous decade prove true? (Sinderman, 1996)

Local economy -- Does Philadelphia have a healthy economy, what does the future hold for the city?

During the recent recession, when the national economy was sagging, the Philadelphia real estate market of the Central Business District held its own. (CCPA, 2004) As it was "never a high-tech Mecca," the city's office market avoided a huge upsurge in vacancies following "the dot-com meltdown." Activity in the hotel sector kept the business district afloat, as more and poorer families turned to local travel, and travel outside of New York City, after 2001. (Walsh & Brickley, 2003)

However, there is still the matter of Philadelphia's sluggish regional economy. Its unemployment is still 1.3% above the national average. But office rents in the third quarter of 2002 averaged $850, up from $820 in the third quarter of 2001. Also, 43% of all city jobs are located in Center City. Almost half of all private sector salaries are paid in this area of the city. While health care and education are the largest employment sectors for the city, with 26% of all city jobs, Center City is dominated by office sector jobs, with 31% of the total. Center City is home to 12% of the region's jobs, and 33% of the region's office inventory because of its proximity to transportation routes, and 80% of the city's commercial space are in Center City. (Center City, 2003)

Competitive supply - How large is the existing market, are there new projects either under construction or in the planning stages?

There is the economic threat, region-wide, of the expiration of a large number of major office leases in the coming years. This will affect thousands of employees and millions of square feet of prime office buildings. "Since 44% of Center City office employees live in Philadelphia's neighborhoods, the future of Center City business will have a direct economic impact on Philadelphia's neighborhoods." (Center City, 2003) From the perspective of the real estate market, the purchase of a new office space could flood an already tenant friendly market.

Competitive Demand -What is the demand for office space, both now and in the near future?

Not only is the market likely to be flooded with open office spaces, thus driving down rents, but also as the region has grown and spread out, Philadelphia's role as the dominant force in the regional economy has slipped. Philadelphia's share of the eight-county regional population has shrunk from 46% in 1960 to 30% in 2000. During those 40 years, Philadelphia's population shrank by over 480,000 people (almost a quarter of its population) while the rest of the region grew by almost 1.2 million.