12A — September 16 - 29, 2016 — Financial Digest/Appraisal — M id A tlantic
Real Estate Journal
www.marejournal.com
F inancial D igest /A ppraisal
By Joseph D. Pasquarella, MAI, CRE, FRICS, Integra Realty Resources - Philadelphia Philadelphia Commercial Real Estate Market Overview T
he commercial real estate market has enjoyed a seven-year bull run. Is i t coming to an end? Nationally, in many ma- jor U.S. mar- kets, real es- tate values returned to p r e - r e c e s - sion peaks, recovering 28%-30% over the past decade. Demand in Philadelphia’s multifamily sector is ex- pected to remain strong for the Joseph Pasquarella
foreseeable future across all submarkets; however, there is considerable supply risk looming on the horizon. Due to the fundamental demand
growth in this submarket and, until recently, the relative lull in new construction (with only 500 units delivered in 2015), landlords are able to command
very robust increases in rental rates with vacancy rates in 2014 and 2015 trending down to low levels. However, the Center City submarket will de-
liver just over 2,000 new units in 2016 (which is roughly 11% of existing supply) and another 2,000 units in 2017. Vacancy rates will rise over the next two years as this new supply is absorbed. The single-family story stands in contrast to the over- supply worries of the commer- cial multifamily market. While healthy sales are reported in the residential sector, con- cerns revolve around invento- ry shortages with scarce labor resulting in rising construction costs. The ongoing, relatively tight mortgage underwriting standards continue to dampen sales in this subsector. Partly contributing to tight underwriting standards, cur- rent interest rate levels pres- ent an unfavorable climate for single-family residential mortgage lenders. In Philadelphia’s retail sub- market, new construction is increasing. However, the new supply is meeting demand and we do not foresee oversupply in the Philadelphia retail mar- ket. The suburban community, neighborhood centers, and well- anchored centers have strong underlying market fundamen- tals, as vacancy is trending downward while rental rates are increasing. The extended Center City residential base has been growing rapidly and is projected to increase dramati- cally for the foreseeable future, spurring CBD retail. Foreign capital made a ma- jor splash into Philadelphia office investment in 2016. We anticipate growing investor demand in the CBD office seg- ment for class A core assets. In the suburbs, the market fundamentals are improving overall and are anticipated to moderately improve for the foreseeable future. The Philadelphia region, inclusive of Lehigh Valley, Southern New Jersey, and Central Pennsylvania indus- trial submarkets, remains a continued on page 14A
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