The CrowdStreet Investments team recently traveled to Philadelphia, the original capital of the United States and where the words, “We the People,” were first spoken. The team met with major national and local developers, including Scannapieco Development, Gold Oller, and Livingston Capital, and learned that developer confidence is strong and the city is teeming with new projects breaking ground, especially in the multifamily sector.
From our vantage point, the immigration of new renters, the burgeoning live-work-play environment, and the convenience of transit-oriented development that utilizes the commuter rail have bolstered the popularity of living in and around the city.
We are excited about potential investment opportunities in the Philadelphia area for a few key reasons:
Record levels of multifamily units currently under construction*
One of the main reasons that CrowdStreet took a trip to this market was the sheer number of new projects being developed in the area.
Philadelphia is experiencing the highest level of recorded multifamily starts in more than 20 years at 18,000 units, most of which are located in the Downtown, Fishtown, and Navy Yard neighborhoods. These under-construction units account for about 5.5% of the total inventory in the city. Multifamily market rates in Philadelphia rarely decline by more than 1.5% annually and conversely, rental growth rarely exceeds 3%, making it one of the most stable major apartment markets in the country*.
A shortage of for-sale housing, combined with unprecedented levels of federal stimulus directed to low- and middle-income households, has provided the fuel for rent growth to break well out of this range, with trailing 12-month asking rent growth running at an impressive 8.8% as of Q2 2022.
The Center City District hosts a concentration of these major developments which are aiming to transform the market from “a 9 to 5 office district to a thriving, mixed-use cosmopolitan center.” Recently completed and under construction projects in this area alone account for about $3.4 billion in new investment. An interactive map provided by the city shows these developments which include a number of mixed-use projects with big players like Greystar and PMC among others, with record-construction activity in Philadelphia expected for 2022.
Philadelphia is among the top life sciences markets in the United States, ranking 8th overall.
Life sciences companies tend to cluster in areas with high intellectual capital and top talent close to high-tier universities. CBRE recently published a report ranking the largest 74 U.S. life sciences labor markets, with Philadelphia ranking 8th overall due to its density of universities and extensive hospital systems. The market was also ranked fifth in terms of relative affordability in the same CBRE report.
Leasing activity for life sciences tenants is surging in Philadelphia with approximately 10 million square feet of lab space currently under planning, development, and renovation. The recent lease signed by The Discovery Labs at University of Pennsylvania’s Gene Therapy Program, among other leases ranging from tenants with 10,000 sq. ft. to 80,0000 sq. ft., points to increasing confidence in the market for this emerging sector of cell and gene therapy. The life sciences presence has earned the city its nickname “Cellicon Valley” and more investors have flocked to this market recently with record-levels of VC funding, raising more than $8 billion in 2021 which was triple the record set in 2020.*
*Green Street, Quick Take: Informational Philadelphia Life Science Investors Fly to Philly, 2022
What does this mean for investors?
Philadelphia is one of the largest economies in the U.S by GDP. In our conversations with sponsors, we consistently heard about the high potential for growth in Philadelphia thanks to its strong university system, high interest from VC funding for life sciences programs, and high interest from developers for transformative multifamily development of the region.
The “City of Brotherly Love” also caught our attention for attributes like its lower cost of living relative to the U.S. average, a growing Millennial demographic, access to public transportation (their public transit system is the sixth-largest), growing cultural and entertainment amenities, and overall rental growth, among many other factors.
“Following two years of unprecedented economic upheaval from the pandemic, the economy in Philadelphia is coming back strong: local unemployment is now down to around 6 percent, construction is booming, and tourism is on the upswing. The implementation of the federal Bipartisan Infrastructure Law will further propel a thriving economy that provides opportunities to all Philadelphia residents and neighborhoods. This once-in-a-generation infusion of federal funding should bring more than $1 billion for roads, bridges, transit, water infrastructure, and broadband access to the City, and thousands of new jobs.” - Mayor Kenney's Vision.
Just like the Mayor of the city, we believe in the potential of Philadelphia. As we strengthen and build relationships with developers in the city, we will continue to bring in deals for our investors, which we believe could play a huge part in the story of growth for the 6th largest city in the United States.