The resilience of the Philadelphia commercial real estate market


The Philadelphia-based reviewer says looking at individual neighborhoods provides the real story

With low caps, and even with potential increases from rising interest rates and inflation, developers and lenders still see multifamily housing as a strong investment in the core areas of the region.”

– Carlo L. Batts, MAI, Rittenhouse reviews

PHILADELPHIA, PA, May 9, 2022 / — Cap rates are at historic lows, major REITs are investing out of town and real estate development in Philadelphia continues at a feverish pace. While the city appears to be on a positive path without a slack on the job site, Carlo L. Batts, MAI, director at Rittenhouse Appraisals, says there is more nuance in what’s happening in the city. “The headline about Philadelphia is a city of resilience,” says Batts, “but the real impact on the composition and geography of the city’s commercial real estate is best viewed at the neighborhood level.”

One such force, Batts says, is the unprecedented development activity in University City. In late 2021, the University City District reported that over 1.4 million square feet of new developments or significant renovations valued at approximately $400 million were underway, with an additional 11 million square feet on the development launch pad. The majority of this development is for office, research and manufacturing facilities to support the growing life sciences industry in the city known as Cellicon Valley.

“While these new building uses bring jobs and people,” says Batts, “you also have to see that they are also changing. and even removing other businesses that round out neighborhood amenities. A case in point is the 13-story laboratory at 38th and Chestnut, which will replace several restaurants including the current home of Abner’s Cheesesteaks. A neighborhood without a real steak shop just goes against everything Philadelphia.” Batts says that while he jokes, he intends to shed light on how these developments are changing the fabric of a neighborhood.

Investing in the university town has an impact on other real estate sectors. Multifamily investment is now shifting to secondary and tertiary neighborhoods, with the 52nd and 63rd street corridors being the primary targets. These transit-oriented neighborhoods are perfect for multi-family development to house the talent needed in the research labs and manufacturing facilities and supporting services. Batts expects that housing demand to continue to grow and said that while the market is currently expanding, more is to be expected. “Given the exceptionally low housing caps, and even with potential increases due to rising interest rates and inflation, developers and lenders still view multi-family housing as a strong investment in the region’s core areas,” he said.

Shifting focus elsewhere While University City seems to get most of the discussion about Philadelphia’s changing real estate market, there is significant activity along the North Broad corridor, from City Hall to Germantown Avenue. Netrality Data Centers’ acquisition and investment at 401 N. Broad Street over the past seven years has created a property just north of Center City for life science users. The corridor also includes a variety of mixed-use projects such as the Studebaker Building and the Divine Lorraine Hotel, with nearly 800 other residential units currently under construction and more planned. As a further demonstration of the neighborhood’s transformation, the Philadelphia Police Department opened its new home on North Broad Street in April, and while it’s only a proposal at this time, the Pennsylvania Ballet is considering a new building in this part of town. “The composition of the area is changing significantly as developers continue to explore new uses for real estate and see the projected high ROI from feasibility and market studies,” says Batts.

In addition to development driving market changes, Batts says Philadelphia is at a point where core centers are re-emerging and connecting, further driving real estate market value changes in all parts of the city. “This advance also creates new service gaps for these redesigned areas to consider in terms of valuations, risk and returns,” he says. “A current shortage that our company is seeing is housing in the North Broad Street, Northern Liberties and University City areas based on projected influx of businesses and people.”

Batts also notes that these neighborhood-specific pressures are spreading outward, prompting small investors and business owners to look into other Philadelphia areas such as Germantown, Mt. Airy, East/West Oak Lane and Overbrook. “In Germantown and Cheltenham in particular, there is a lot of activity that is not discussed,” says Batts. “While there is some uncertainty on the part of investors due to fears of an emerging war economy along with rising interest rates and inflation, shortages and demand,” he says, “the projected positive returns appear to be overcoming those doubts.”

About Rittenhouse appraisals
Rittenhouse Appraisals is a Philadelphia-based appraisal firm providing in-depth real estate appraisals, market analysis, real estate appraisals and tax analysis for commercial real estate throughout the Greater Delaware Valley market. Visit for more information.

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