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Ongoing Demand for Apartments, Strong Job Growth Keeping Philadelphia Optimistic for 2020

Ongoing Demand for Apartments, Strong Job Growth Keeping Philadelphia Optimistic for 2020

Lauren Gilchrist, senior vice president and senior director of research for JLL Philadelphia, presenting her localized outlook at a ULI Philadelphia event.

Positive news for Greater Philadelphia going into 2020 includes job growth, a growing population of young people, strong demand for apartments, and a booming, new biotechnology business, said panelists at ULI Philadelphia’s 20th Annual Real Estate Forecast.

“This crowd is way more optimistic than the nation,” said Mitch Roschelle, partner and business development leader for PricewaterhouseCoopers. He presented the data from the Emerging Trends in Real Estate® 2020 report, copublished by ULI and PwC.

“We are showing no signs of letting up just yet,” said Lauren Gilchrist,
senior vice president and senior director of research for JLL Philadelphia, presenting
her localized outlook on Philadelphia real estate to the crowd.

Philadelphia’s Development Boom

The Philadelphia district council of ULI held the event at a
new larger setting at the Westin Hotel. Even with the extra space, the room was
packed. Well over 600 real estate experts attended—about 100 more than 2018.

Using a real-time polling tool, more than half (54 percent)
of the attendees feel that the prospects for profit growth for next year are
stronger now than the prospects for growth were a year ago, according to a
survey of the crowd.

That is very different than the results from ULI’s Emerging Trends report, which surveyed
2,200 real estate experts over the summer. More than half (54 percent) of
respondents said that the prospects for growth had not changed since the year
before. Only a quarter (23 percent) thought that the prospects for growth had
weakened. Another quarter (23 percent) thought the prospects for growth had

“You folks are way more optimistic than the national pool .
. . or something has happened since the summer,” said Roschelle.

So far in 2019, a growing number of economists have lowered
their projections for the U.S. economy in 2020. Trade wars and disputes between
the United States and several of its largest trading partners and uncertainties
such as whether the United Kingdom will leave the European Union have clouded
the outlook for the economy.

“The recession word was used like crazy over the summer,” said
Roschelle. Those fears
have not yet materialized. The U.S. economy grew 1.9 percent in the third
quarter of 2019, according to the first reading of gross domestic product

because of this volatility, investment has continued to flow into real estate
overall. “We are in volatile times,” said Roschelle. “Property has proven to be the ultimate
hedge against volatility. . . . Notwithstanding the fact that all of these
things are going on right now, people are more interested in real estate now
than ever before.”

Localized Optimism

year’s Emerging Trends report
positioned Philadelphia among the “Markets to Watch” and as a “Stalwart,
Surprise, and Determined Competitor” characterized by a track record of capital
inflows and recent evidence of solid transaction volume.

The economy in Philadelphia continues to produce new jobs. “The
jobs numbers in the city and the region are overwhelmingly positive . . . perhaps
less so in Southern New Jersey,” said Gilchrist.

Demographics are helping Philadelphia grow. “We have the
highest growth rates of 18- to 34-year-olds of the Top 10 Cities,” said Gilchrist. “There might be
some question of whether young people are leaving cities. In
Philadelphia, that is not the case.”

In addition, Philadelphia’s economy is developing a new
specialty in its growing biotechnology industry. “We are at record levels for
venture capital investment in this space,” said Gilchrist. “The deals are getting bigger and there are more
of them.”

More than 30 cell and gene companies in Philadelphia have
raised more than $1 billion in venture capital in the last 18 months,
supporting more than 3,000 jobs. “I
didn’t think it would actually come this fast,” said Jeff Marrazzo, cofounder and CEO of Spark Therapeutics,
based in Philadelphia.

Apartments in Demand

Developers have been
building a tremendous amount of new apartments over the last few years.
However, even more new renters have appeared to sign leases and move in.

“It is surreal how much construction we have had,” said Gilchrist. “However, we are absorbing more class A apartments in Philadelphia than we are able to deliver on a quarter-over-quarter basis. Over the last two years, the percentage of occupied apartments has risen to 94 percent from 90 percent,” said Gilchrist.

“If you are a multifamily developer, you do have to be concerned about cost of labor,” said Gilchrist. But she added, “You don’t have to be concerned about demand.”

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