Unveiling Philadelphia's Dynamic Real Estate Scene

Philadelphia's Life Science Hub: Schuylkill Yards

3151 Market St. is a crucial part of the $3.5 billion Schuylkill Yards project in University City. Rendering courtesy of Brandywine Realty Trust showcases the grandeur of this upcoming life science tower. The market's fundamentals have been a topic of concern, with vacancy ballooning 510 basis points over the past 12-month period. However, the supply pipeline remains relatively muted, with only 1.9 million square feet under construction. Four out of the five projects underway in October were life science assets, indicating the city's growing importance in this sector.

Philadelphia had 1.9 million square feet of office space under construction as of October, representing 1.1 percent of the market's existing stock. This is 20 basis points above the national figure. When compared to peer markets, Philadelphia is ahead of Phoenix (0.4 percent of stock underway), Houston (0.7 percent), and Charlotte (0.9 percent), but lags behind San Diego (3.2 percent) and Nashville (3.5 percent). These figures highlight the city's position as an emerging hub in the life science space.

Parkway Corp.'s Chubb Headquarters: A Major Development

The Chubb headquarters will span 438,000 square feet, courtesy of JLL's rendering. The largest project underway is Parkway Corp.'s 2000 Arch St. in the Logan Square neighborhood, a 550,000-square-foot building that is a build-to-suit for Chubb. The developer obtained $409 million in credit tenant lease financing last year. This project showcases the significant investment and growth in Philadelphia's commercial real estate.

Other life science assets include Brandywine Realty Trust and Drexel University's 3151 Market St., Spark Therapeutics' center at 3001 Chestnut St., a 350,000-square-foot facility for Children's Hospital of Philadelphia set to open in 2025 with laboratory space, and 3201 Cuthbert St. by Gattuso Development Partners and Vigilant Holdings of New York, a 519,647-square-foot property with $290 million in construction financing in late 2022. These projects collectively contribute to the city's evolving real estate landscape.

Office-to-Residential Conversions: A Growing Trend

In response to rising interest in office-to-residential conversions, CommercialEdge created the Conversion Feasibility Index (CFI). Philadelphia had 43 assets, roughly 5.6 million square feet, in the Tier 1 range as of October. An additional 165 buildings were Tier 2, approximately 26.8 million square feet. For example, 1701 Market St., a 929,124-square-foot high-rise, will be converted into 299 rental apartments. Alterra Property Group secured a $70 million construction loan for this project slated for completion in Spring 2025. The property has a CFI score of 96, indicating its high potential for conversion.

Gazit Horizons is redeveloping the 76,500-square-foot Art Deco building at 1618-1622 Chestnut St. by bringing 67 units online from the currently occupied office space. This trend shows the adaptability of Philadelphia's real estate to changing market demands.

Average Price and Transactions in Philadelphia

Investors traded $316 million in assets across the metro year-to-date through October. Office space in Philadelphia continued to change hands at a below-average price per square foot, $83, compared to the U.S. figure of $177. Philadelphia also ranked last among its peer markets in terms of average price, below Houston ($104), Charlotte ($151), Phoenix ($164), Nashville ($193), and San Diego ($198).

The largest transaction was Incyte's $34.2 million purchase of the office asset at 1100 N. King St. from Capital Commercial Investments. The pharmaceutical company also bought the property at 1100 N. French St. for $13.3 million. KKR sold the 267,597-square-foot asset at 111 S. Independence Mall E for $31 million to Lubert-Adler, the second-largest transaction year-to-date through October. The Bourse building, constructed in 1895 and now housing 20,000 square feet of retail and nine floors of office space, underwent two rounds of complete renovations in 2012 and 2018.

Vacancy and Stabilization in Philadelphia

Philadelphia's overall vacancy stood at 18.9 percent as of October, below the 19.4 percent national figure. However, the metro's rate increased by 510 basis points year-over-year, while the U.S. average was up 160 basis points. Compared to peer markets, Philadelphia's vacancy is somewhere in the middle, higher than Charlotte (16.4 percent), Nashville (17.5 percent), and Phoenix (18.4 percent), but below San Diego (20.6 percent) and Houston (24.3 percent). This shows the city's unique position in the national real estate market.

Expanded Coworking Inventory in Philadelphia

In October, Philadelphia had around 2.8 million square feet of office space dedicated to coworking, which was 1.5 percent of the market's total inventory, 40 basis points below the national figure. Despite lagging peer markets, Philadelphia's amount of shared space locations grew by 9 percent from the second to the third quarter, according to CoworkingCafe. The metro now has 150 coworking locations, and the median price for monthly rates for open workspaces was $119 in September, below the average.

Not many significant deals took shape across the market in recent months. In September, Potter Anderson & Corroon LLP renewed its 82,757-square-foot lease at 1313 N. Market St. in Wilmington, Del. Earlier in November, Rubenstein Partners signed Arcfield at its Chesterbrook Corporate Center in Wayne, Pa., occupying 36,000 square feet. These transactions give an insight into the city's ongoing commercial activities.