On Tuesday, November 19, over 600 ULI members and real estate professionals gathered at The Westin Philadelphia to discuss the state of the region’s real estate market and the driving trends that are informing business and land-use decisions for 2020. Over 100 additional attendees were welcomed this year, thanks to an expanded venue at The Westin Philadelphia.
Philadelphia is experiencing the highest job growth in decades, driven in part by a significant local success in the life sciences. For the first time, the event focused on this particular sector and how the real estate industry can assist and respond. This expanded programming also included a ULI Philadelphia Young Leaders Mentorship Meetup, as well as behind-the-scenes development tours of two of the most impressive developments of the past year: Comcast Technology Center and the emerging Schuylkill Yards.
The first program focused on Philadelphia’s Life Sciences Story, shared by Jeffrey D. Marrazzo, Co-founder, and CEO of Spark Therapeutics, and moderated by John Grady, President of PIDC.
Marrazzo, a native of East Falls, shared his journey from the Rendell administration to having the opportunity to lead in commercializing research at the Children’s Hospital of Philadelphia (CHOP). After meeting with Dr. Kathy High in 2011, Marrazzo believed that “if [the hospital wanted] to capture the value that [they] can create from [Kathy’s research], [they] need to put [their] own capital in it.” After a $35 million investment from the hospital, CHOP’s stake is now valued at $750 million, creating a permanant funding stream for other pediatric research in a changing and increasingly cost-driven healthcare environment. Marrazzo sees a real need in the next year to develop manufacturing capacity in both his company and other life sciences counterparts. “We don’t want to be stuck in a position where we have a transformative treatment that can affect millions of patients but we can’t make it at scale or in a cost-effective manner,” he explains.
Building on Marrazzo and Grady’s discussion on a broader scope, Moderator Matt Cabrey, Executive Director of Select Greater Philadelphia led a discussion on market growth and change titled Philadelphia Rising: Elements of Success. The panelists included Prema Katari Gupta, Senior Vice President, Navy Yard, PIDC; Alexandra Johns, Vice President/Market Leader, Co-Investment, Mid-Atlantic Region, Grosvenor Americas; Daniel Killinger, Managing Director, National Real Estate Development; and Joseph Reagan, Northeast Region Executive, Senior Vice President, Wexford Science + Technology.
Gupta shared a recent success story of a California-based Immunotherapy firm and a New York-based cell manufacturer. After a nationwide search, they both chose the Navy Yard due to the unique mix of high-quality talent from local research institutions, the Navy Yard’s unique capacity to hold large facilities “that don’t fit within [our] beautiful, walkable victorian grid,” and the site’s adjacency to the Philadelphia International Airport, meeting the “need to move personalized medicine very quickly to different markets.” Prima urged moving beyond discussion and towards implementation on diversity and inclusion within the real estate industry, as well as better first-mile, last-mile connections to support sustainable live/work patterns.
Johns reflected on Philadelphia’s unique strengths in a market experiencing a value-shift towards authenticity, optionality, and mobility. She echoed Gupta’s sentiment on mobility; she described the value of being able to “walk to other offices, have an exchange of ideas,” warning “Mobility is not everywhere. [But] locations that do have it excel.” Johns hopes for more public/private collaboration to scale up some of the promising local successes that would otherwise be lost.
Although Killinger’s recent development in Philadelphia, East Market, has no life sciences tenants, the project benefits from the apartments, retail purchases, and hotel stays that this industry supports. Killinger sees a lot of developers thinking about two key markets: millennials and empty nesters. He remarks, “But what about the gap in between? How do we keep people a few years longer, bring them back a few years earlier?” He also sees a significant opportunity to bring the same strategies that makes East Market so successful — robust walkability and public spaces, 24 building faces, and a well-choreographed mix of tenants — to enliven and meet the workforce and affordable housing needs of a growing Philadelphia.
Reagan’s property, uCity Square, perhaps most directly benefits from the value created by academic and healthcare institutions, directly supporting the needs of the University City Science Center and the need for specialized laboratory space at different sizes. He sees hope in that as life sciences mature as an industry, they’re not seeing the pressures of the past to move to Cambridge — they’re staying here in Philadelphia. However, he worries that as construction costs continue to grow and the construction workforce ages and retires, it will increasingly drive up prices and slow the ability of this pivotal industry to grow.
Following the morning’s insight and discussions, Market expect Lauren Gilchrist, SVP & Sr. Director of Research — Philadelphia of JLL presented the Local Trends to watch in 2020.
Gilchrist compared this moment to Salvador Dali’s painting Persistence of Memory. The outlook seems positive but unclear, as this moment is much different than any other point in history. For the first time since 2001, job openings exceed unemployed people in the workforce, which will drive up costs and constrain growth. The market appears to be not developing enough multifamily to meet a strong demand; however, Gilchrist worries that an increasing cost-of-construction, driven mainly by this aging workforce, could hinder future growth. Gilchrist sees potential disruption in the spectrum of utilization in the office and rental markets, as new trends in flexible office and living arrangements emerge with more stability than the now-famous instability of the WeWork co-working model. Gilchrist worries about the future impacts to the cost-of-construction that could be driven to revisions to the City of Philadelphia’s 10-year tax abatement and tariffs that could hinder foreign investment.
To build upon Lauren’s presentation, Mitch Roschelle, Partner & Business Development Leader at PwC gave an overview of National Trends, as detailed Emerging Trends in Real Estate® 2019 Report released by ULI and PwC.
This year, willingness to embrace change and rethink growth strategies is key to successful cities, as identified in the Emerging Trends in Real Estate® Report. Overall, this year’s survey respondents felt almost exactly the same about the outlook of the real estate industry as found in last year’s survey. The economic expansion is at a record length and counting. This year’s report indicates that during volatile times, real estate remains an asset class of great interest. Consumers continue to carry the economy, businesses are not investing in capital expenses, and the tight labor market looms large.
ULI Philadelphia thanks its sponsors, speakers, and all of the members and volunteers who made this event possible. We look forward to meeting new members on December 3rd at our New Member Open House, and we wish all of our supporters a Happy Holidays, and we’re looking forward to working together in the New Year.
Contributed by Will Herzog. Will is a second-year Master of City Planning candidate at the University of Pennsylvania and Chairman of the SEPTA Youth Advisory Council (YAC).
To view photos of the 20th Annual Real Estate Forecast, visit the press release.