18B — July 22 - August 18, 2022 — Pennsylvania — M id A tlantic Real Estate Journal


P ennsylvania

By Carlo L. Batts, MAI, Rittenhouse Appraisals Uneven Pace in Philadelphia’s Commercial Real Estate Recovery

H eadlines assert com- mercial real estate values are at a pin-

track for record construction activity this year, based on the volume of plans filed with local authorities. A drill down into the CRE sub-sectors provides more definitive information on what is thriving and hav- ing a slower climb. With interest rates beginning to rise and expectations of a recession, those watching the Philadelphia market are considering these challenges and opportunities. A Return To Experiences An enjoyable experience

is a key driver of consumer behavior and smack in the middle of this is brick and mortar retail. Suffering in the lead up to the pandemic, partly due to over abundance and the online shopping ef- fect, this segment may have had the toughest rebound to negotiate. Some relief has begun as permanent resi- dents and leisure visitors are returning to the city, looking to satisfy their cravings. Similar to retail is office, a sector also based on ex- perience. Rent growth here

is quiet as work from home routines continue. Although activity has quickened in the last few months, land- lords have yet to garner rent increases. One small bright spot is Class A space as com- panies look to workplaces with amenities to entice employees, and attract and retain talent. A City More Connected Multifamily and industrial are the current darlings of Philadelphia commercial real estate. Yardi’s recent report noted multifamily occupancy

reaching 96.9% as of Febru - ary 2022, with average rent of $1,641. Driving the success of this sector are the rising medical research facilities, and multifamily develop- ment in adjacent corridors. Over 7,000 apartments deliv- ered in 2021, and per Yardi, 70,000 apartment units are in planning and permitting stage. PwC recently projected multifamily continuing to ex- pand until 2025, with rising interest rates actually help- ing landlords as single-family sales are expected to decline. For industrial prospects for long-term growth are opti- mistic, as the sector remains in expansion mode due to an infusion of capital and activ- ity. PwC’s report anticipates this continuing for a few more years with contraction begin- ning in 2025. A City with the Right Stuff Hotel room revenue is ex- pected to improve in 2022, but the year overall is pro- jected to average 19.6% be- low the 2019 level, per a Tourism Economics report to the Philadelphia CVB in Feb - ruary 2022. Leisure travel has returned more quickly than other travel segments, and AHLA estimates Phila- delphia hotel revenue from business travelers in 2022 will be $562 million, a signifi- cant drop when compared to 2019’s $895 million. While it will take a few years to get back to pre- pandemic levels, the hospital- ity sector should continue to grow as Philadelphia offers amenities integral in at- tracting leisure travelers the conference circuit - excellent location, major transporta- tion hubs, proximity to other large markets, and ample tourist attractions. Conclusions Philadelphia’s recovery continues and while a na- tional recession is most likely to come the northeast should weather it well. Acquisition activity will continue despite higher interest rates. There will be some pull out of in- vestment and projects that were troubled from the start, but that ultimately is neces- sary to maintain a healthy real estate market. Carlo L. Batts, MAI is principal of Rittenhouse Appraisals. MAREJ

nacle in Phil- adelphia. There is an infusion of national and internation- al invest- ment and almost daily announce-

Carlo L. Batts

ments of new partnerships, new players, and new proj- ects. According to Philadel- phia YIMBY , the city is on

Commercial Real Estate Serving the Greater Delaware Valley Appraisers

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