Philadelphia: A Spry Metropolis
The Property Boom Has Ignored

It is the nation's fifth most populous city, with a rich colonial history and a central location on the densely populated East Coast, but Philadelphia has been largely bypassed by the real-estate boom. Prices for office buildings rose 8.2% in the first three quarters of this year compared with 2004, but at $145 a square foot, they are closer to Baltimore and Richmond, Va., than to such booming cities as Washington, D.C., New York and Boston, where prices can be at least twice as high.

Indeed, the price of one of Philadelphia's best-known buildings has fallen. In 2002, Two Liberty Place, the city's second-tallest tower, sold for about $200 million. It recently changed hands again, but this time for $151 million because, according to research firm Real Capital Analytics, of its rising vacancy rate.

The 727,725-square-foot Cira Centre office building across from Amtrak's 30th Street Station in Philadelphia will officially open in December.

Of the region's real estate, Philadelphia's office sector compares most favorably to national averages, with already below-average vacancies declining to 15.4% while rental rates for the region inched down to $21.59, according to Property & Portfolio Research Inc., a Boston real-estate-research firm. Apartment vacancies are declining and rents are rising, though they remain below the national average, PPR said.

Like many former industrial cities in the Northeast, Philadelphia has struggled with deep poverty, racial issues and government corruption. The latest scandal to tarnish the city's image is a bribery case that involves a prominent city councilman who was indicted last week.

Still, the economy is strengthening after losing its edge as a banking center in the 1990s. Drivers include the education, pharmaceutical and tourism industries. Officials have been working to reduce prohibitive business costs that are about 11% above average, PPR said. Meanwhile, unemployment fell to 4.6% in August from a high of 6% in early 2003, according to the Bureau of Labor Statistics.

A slew of new condominiums in Center City has been fueled by a nationwide trend back to urban living and a tax-abatement program designed to encourage new uses for older buildings. The downtown's residential population has risen to 88,000 from 78,000 in 2000, even as the city lost population, according to the Center City District. "It's an acceleration of what's been going on," said Paul Levy, CDC president, noting that a restaurant renaissance helped jump start the area about 10 years ago.

Among the larger new projects on deck are the Residences at The Ritz-Carlton. Arden Group, of Philadelphia, expects to begin construction of the $250-million high-end condominium project in January. It is slated for the former site of the Meridian Plaza Building across from City Hall, which sat vacant for almost 10 years after a deadly fire in 1991.

The hot condo market has helped bring down the office market's vacancy rate through the removal of older office buildings from the rosters for condo conversions. Jerry Sweeney, chief executive of Brandywine Realty Trust, of Plymouth Meeting, Pa., believes the increased residential population will ultimately help boost demand for the city's office space. The region's largest office landlord, Brandywine owns and manages about 24 million square feet of office space in the region and just completed its new 28-floor Cira Centre office tower across the street from Amtrak's 30th Street Station.

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