Town Hall Meeting Generates Bullish Outlook

[IMGCAP(1)]PHILADELPHIA-As insiders all over the country discuss the possibility of a recession, due to a turbulent capital market environment and residential fallout, Philadelphia experts believe that the Philadelphia region doesn’t always follow in lock-step with the rest of the country. Approximately 500 attendees joined RealShare’s Philadelphia conference Thursday, looking for answers during a time filled with a lack in clarity.

[IMGCAP(2)]During the general session Town Hall Meeting: The State of the Philadelphia Market, moderator Robert Walters, a senior managing director of CB Richard Ellis looked to panelists Jeff DeVuono, SVP and regional manager of Brandywine Realty Trust, David Fahey, president of the commercial division at Binswanger, Bill Glazer, president and founder of Keystone Property Group, James Mazzarelli, SVP and regional director of Liberty Property Trust, for their outlooks on where Philadelphia stands going forward.

[IMGCAP(3)]“Clearly there is a discussion about the recession and tough times, but I would love to remind everyone that it was less than a year ago—July of ’07—when everybody in the market was walking around complaining bitterly that there was nothing to buy,” said Glazer. “The complaint today is that there is nothing to buy because there is no money. Pick a complaint. I like this market, because we are back to blocking and tackling, fundamentals.”

[IMGCAP(4)]Mazzarelli notes that Philadelphia is moving in a solid direction. “I think that when you talk about what’s happening in the Philadelphia economy and real estate, you have to go right to the demand side. …You start in the core; everything happens in the Center City and moves out in my opinion. We have an incredible healthy, maybe even defined as robust city in Center City Philadelphia.

He continued that “supply and demand is in perfect order, with demand maybe outstripping supply right now, and rents are going up.” He explained that in the western suburbs, financial markets are thinking about expending, life sciences are expanding and technologies are talking about hiring more people, which he said is a good side. He further explained that if you go look at the Eastern part of the suburbs, “although they have gotten banged around a little, insurance companies are starting to expand and that is a good thing, so I think you are going to see that market stabilize from what looked like a dower situation a year ago.”

DeVuono is more bullish than negative looking out from the inside. “The capital markets really have returned to a normal environment and that is a good thing,” he said. “On the demand side, we went into 2008 very bullish on the demand of office space in Center City Philadelphia and we continue to be pleased with that opinion….You have a declining tax environment not only with the existing administration and you have a situation where you have a cost of construction that is going to prohibit new construction so you have a better balance between supply and demand.”

He further noted that there is really no market in this region that isn’t under a lot of pressure. “You’ve got some that are better than others, but this environment from an occupancy, demand perspective is something you don’t really have to worry about.”

Fahey said that Philadelphia is more insulated than other regions in the country and believes that the city will do well with some of the other positive things it has currently going on. “All we hear about is economy and recession and that is certainly a negative, however drilling down a little further in the Philadelphia area, we have vacancy which is going down and rental rates which are going up,” he said. “On the other side of the equation, we’ve got sales rate going down, but cap rates going up so there is some confusion going on. Philadelphia is an anomaly compared to other places.”

Fahey noted that he thinks the city is in relatively good shape regardless of what’s going on in the general economy. “I think that will bode well,” he said. “I think it is an exciting time because we have a new administration.” He did say though that he was a little nervous, “because you never know. Commercial real estate is a lagging indicator, so maybe six months from now, it will be a problem.”