I checked out a commercial real estate program in Philly last Friday with some discussion that was far from cookie cutter. The group magnified the market activity in office and industrial sectors in the area from quite a few slants (the leasing, tax, appraisal, construction, and development ends among others). In a 3-hour interval, the term “Amazon” was said a minimum of 55 times—and by no means is that arbitrary. The potential for this “unicorn’s” HQ in Philly has big time implications, but before we get there (if we get chosen – fingers crossed), the panel encouraged to focus on what companies we already have to contribute to the health of our economic state. Comcast, an unmistakable gem currently instrumental to Philadelphia’s business allure, is a good example of how a large company can drive jobs and economic health. We need to draw more of these “unicorns” by investing in the growth of the existing.
We can notice several real estate features that are becoming a goal in Class A spaces from the leading companies we should aim to foster. Co-working spaces, huddle rooms, day care options, open ceilings, and a heightened design are all common goals. Space that is functional and authentic for a reasonable cost is the golden opportunity.
What’s interesting is a major repositioning of traditional ownership occurring currently. The whole dynamic of a landlord is being shaken up by co-working spaces. In the future, the speakers predict that a large percentage of tenants will rent from an entity that doesn’t even own the building. Third parties such as WeWork offer flexible accommodations and lease terms, however aren’t building ownership. There is a statistic that by 2025, the typical lease term will be one year in duration. With current commercial tenants typically leasing for multiple years, this option of a shorter term is appealing to many organizations looking to adapt to the changing needs of their business quicker. Time will tell if this move will stick.
There is also a big variation in needs as our demand evolves, dictating how spaces create utility for occupants. For instance, many of the office buildings from the 1980’s may have a surplus/shortage of parking spaces per occupant, however as growth of Uber and automobile technology changes, parking space may eventually see a huge reversal. The key is to be patient to see what the future holds.
I was glad to hear the panel mention the King of Prussia Town Center and the success of this project, as JH Greene completed a pretty diverse retail project there last year. Centers such as this one signal a strong market as the suburbs of Philly continue to thrive.
From the industrial side of the conversation, the speakers emphasized the industrial construction opportunity by the I-78/I-81 corridor being actively pursued by large corporations for warehouse/distribution needs. The 3 distinct submarkets here (Central PA, Northeast PA, and Lehigh Valley) have been increasingly attractive to commercial real estate folks because of population density, toll free roads, and developers’ confidence. Rents are up 9.5% from last year in this area, and construction ranks among top players in the United States.
Although industrial isn’t exactly a “sexy” sector, there isn’t a full embrace to this development, as healthy as it can be to an area. These spaces bring trucks, lower paying wages, and noise that can sometimes cause neighborhood opposition. It was presented that every American uses 49 square feet of warehouse space in some form. With this need, comes a big push to repurpose existing space to accommodate e-commerce fulfillment and broad-based needs in food/beverage, retail, industrial, and manufacturing.
A door opener will be alignment with municipalities and a positive relationship with regional planning authorities. We need to think outside the box to take advantage of growth patterns such as the one we’re seeing in the Philadelphia market. Taxes can be a big component of an area’s “take off,” and in order to create a sense of place on a larger scale, we need to spur growth by collaborating with local government.
As for future outlook, automation and robotics will be an interesting factor in how our industrial (and even office) needs will evolve. If the golden goose Amazon does land in Philadelphia, there will be a tremendous influx of demand and heightened property value. However, if Amazon doesn’t work out, it wouldn’t be the worst thing in the world. We can use all the preparation and emphasis placed on Philadelphia as a business center toward other big players.
Thanks to the Mid-Atlantic Real Estate Journal for an awesome summit – I highly recommend to any real estate/construction professional looking to hear news and views from some experienced pros.