Multifamily, Retail Demand Lures Investors

Philadelphia's apartment vacancy rate of just under 4% makes it one of the lowest in the nation, according to Ann Bailey, first VP of multihousing investments. She sees out-of-region private capital investors as the most aggressive buyers in the metropolitan area. "Condo mania will continue," she said, "because it provides developers with a faster, more profitable exit strategy, not to mention keeping the number of apartment rentals down, vacancies down and rents high." Multifamily development activity will not be limited to Center City, she added. Pointing to projects under way in Pennsport, Port Richmond, Fishtown, South Philadelphia and Germantown, she said more than 3,900 units will be completed between 2005 and 2008.

With cap rates at their lowest levels in more than two years, Walters said private investors backed by institutional funds will be the most likely buyers of retail property. "B assets will be achieving A asset pricing levels," he predicted. He also believes these investors will take advantage of "redevelopment opportunities for big box retailers, such as Target, Lowes, Wal-Mart and Home Depot."

In the industrial market, Carl Gersbach, a managing director, sees growing need for large and efficient warehouses operated by third party logistic entities that prefer fewer, but larger buildings. Industrial land to accommodate such structures, especially along the I-81 and I-78 corridors, is taking land prices to over $130,000 per acre in the Lehigh Valley. He expects ProLogis, Liberty Property Trust, First Industrial, Opus, USAA Real Estate Co. and Berwind Property Group to develop those facilities.

Recovery of the office sector is expected to be gradual, according to Dan Dagit, SVP of CBRE's Wayne office. "We don't expect rental rates to support new speculative office construction for several years," he said. Conshohocken and King of Prussia will continue to lead the recovery, he predicted.

Office building sales will continue to maintain record per-sf pricing, added Robert Fahey, EVP of investments in the Wayne office. "Foreign money, most notably the Germans, will firmly embrace the Downtown Philadelphia office market," he said. "And TICs, a consolidation of up to 35 individual 1031 tax-free exchange buyers, will become a more prevalent player, not only in Center City, but in the overall marketplace."