Update: More from Brandywine boss Jerry Sweeney in my column in today's print Inquirer here.
Earlier: Brandywine Realty Trust, the Radnor landlord that controls half the high-end office towers in Center City, plans to fill vacant city and suburban space with apartments (more on the lack of office demand here):
1) "1919 Market, which is owned through a 50/50 joint venture with [Independence Blue Cross] will include 292 market-rate apartments and 55,000 sq. ft. of retail, and is expected to be delivered by 4Q’14," writes Daniel P. Donlan, real estate analyst at Janney Capital Markets, in a report to clients this morning after Brandywine bosses met with investors.
The move accelerates the expansion of residential development into the Market Street office tower district west of City Hall. The vacuum created by weak office demand since the mid-2000s has also attracted the Liberty 2 office-to-condo conversions, the Murano condos and developer Ron Caplan's residential redevelopment of the former AAA insurance building.
2) "At Cira Centre South, which is located in University City (proximate to both University of Pennsylvania and Drexel campuses), management intends to take advantage of the high demand for both market-rate and student housing by building a mixed-use residential development through a [joint venture] with another public company," timetable TBD, Donlan added.
Brandywine's plan for a Cira II office tower (in a tax break zone south of its successful Cira I near its renovated 30th Street Post Office and new parking garage) fell through in the 2008+ collapse, but the company has increased its west-of-Schuylkill holdings by foreclosing on a Market Street office building.
3) "On the Plymouth Meeting site, the REIT plans to enter into a JV agreement for a 400-unit apartment development." UPDATE: Brandywine ceo Jerry Sweeny confirms this will be "new construction."
Donlan added: "Additional land parcels in New Jersey and Pennsylvania are currently undergoing planning and zoning for residential, hotel, and mixed-use, or for potential sale." (For example, Tredyffrin Township, Chester County is considering changes to height and building use limits that could allow Brandywine and other landlords there to 'repurpose' aging properties. More here.)
Office rents in the region are still so weak (stuck in the $20s/sq ft range for high-end space, same as 10 and 20 years ago) that there's little economic justification for new construction (which costs in the $40s/sq ft and up).
But demand for rental apartments in Center City and other parts of Philadelphia is on the rise. Donlan cites three groups of tenants: "empty nesters" who still work in the city or have retired and sold their larger suburban homes; recent college graduates who don't own cars; and, "as people are waiting longer to get married, they are staying in the city longer."
"The continuing diversification of downtown land-use is good for Center City," said Paul Levy, who runs the Center City District, which assesses a tax on downtown properties for sidewalk cleaning and other services the city doesn't provide. "It strengthens the live-work environment, since between 40% to 50% of downtown residents work downtown. It helps animate the streets at night and creates more demand for Center City retail.
Most importantly, the more diverse the downtown has become, the more we have retained real estate values – the assessed value of property within the Center City District, which represents about 22% of the assessed value of all property in the city, has gone up every year during this recession.
"So diversification pays dividends. Now if the City would also start reducing the wage and businesses taxes, there would also be demand for more downtown office space."