Commentary: Use Phila.'s strengths to promote further growth

By Paul R. Levy

Sometimes signs are so big, you can't miss them. Villanova, a suburban university, wins the national championship and selects Center City as the place to celebrate. An estimated 60,000 - many still reveling in the three-point buzzer shot, others just starved for any national sports championship - packed Dilworth Park and overflowed onto surrounding streets.

Some signs of change are subtle. Researchers at the Federal Reserve Bank calculated that Philadelphia's share of new regional housing units rose from just 3.4 percent in 1989 to 34.2 percent in 2015. The city has outpaced each adjacent county every year since 2010. Millennials take this for granted; boomers are still astonished.

Greater Center City, just 6 percent of the city's land area, attracted 25 percent of all in-movers to Philadelphia from 2010 to 2014, according to an analysis by the Center City District (CCD). Walkable streets and easy access to jobs, arts, culture, restaurants, and outdoor cafés are powerful attractions.

For years, downtown office leasing was a game of musical chairs. Tenants traded up from building to building; space left behind was converted to housing. But last year, 23 percent of space leased went to firms coming from outside the city.

Since the Pennsylvania Convention Center opened, downtown hotel rooms have doubled in number, while hospitality, leisure, and entertainment employment growth outpaced the region and nation.

Many more reasons to celebrate are found in CCD's State of Center City 2016 report. Construction cranes are everywhere; pedestrian volumes are surging. Still, the State of Center City too often appends the word but to positive trends.

Take the remarkable growth in share of regional housing starts. We've turned around decades of suburban flight. But 34 percent of new units closely mirrors Philadelphia's share of regional population. We were really just holding our own as suburban starts slowed.

Job growth remains uneven. "Eds and meds" jobs are up 50.5 percent citywide since 1990; leisure and hospitality are up 51.2 percent. But office industries are down 23 percent in the last 25 years. We're not just losing jobs requiring college degrees. Office towers are brimming with technical and clerical workers, engineers, security personnel, and janitors. When tenants expand or move in, construction workers renovate space.

A simple measure of success is the rent premium businesses will pay to locate in employee- and amenity-rich central business districts (CBDs) instead of suburbs. The national CBD premium in 2015 averaged 25 percent - rising to 112 percent in Boston and 75 percent in Washington. Philadelphia's premium was just 4 percent. Why should we care? Low rents mean low real estate values for commercial buildings. Low values mean less money for schools.

Some saw the city's Actual Value Initiative as a windfall for commercial owners as their taxes decreased. But it was really weak demand dragging rents below national averages. Boston's average downtown rent in 2015 was $55.60 per square foot; Washington's was $51.35; Chicago's, $33.91; Philadelphia's, only $27.44.

We're in the midst of an urban-led recovery. Large cities have outpaced the national economy since 2010. While private-sector jobs expanded nationally at 2.1 percent per year, the 25 most populous cities grew 2.7 percent annually. Philadelphia grew by just 0.9 percent per year. No doubt, the national urban average is elevated by Sun Belt growth engines like Austin, San Francisco, and San Jose. But Columbus, Detroit, Indianapolis, and Memphis have outperformed Philadelphia since 2010, as have Boston, New York, Baltimore, and Washington.

Lagging job growth means not only low rents, but high unemployment and poverty. Center City and University City may be prospering, but it will take a higher tide to lift all boats. Philadelphia still has 28 percent fewer jobs than in 1970, while Boston, New York, and Washington have more than replaced what they lost. Their unemployment and poverty rates are significantly lower.

Philadelphia is not wanting for entrepreneurial talent. Comcast is expanding, as are dozens of tech start-ups and hundreds of neighborhood-based firms. Universities are investing in innovation. But Philadelphia is constrained by a tax structure that hasn't kept pace with the changing economy. Small and minority businesses struggle to add employees in a slow-growth setting. Too few export industries generate wealth for the city. Reliance on wage and business taxes may have made sense in the industrial age, when factories couldn't move. But in today's fast-moving world, our tax structure depresses growth just when the city's intrinsic advantages have come to the fore.

State legislation, endorsed by Mayor Kenney and a broad cross-section of business and labor, would enable the city to reduce dependency on wage and business taxes and rely more on property taxes - also the foundation for funding schools.

Philadelphia stands at a crossroads. Let's capitalize on our extraordinary strengths, concentration of talent, and geographic position. Let's stop settling for second-rate growth and create many more opportunities for all city residents, new immigrants, and graduates of our colleges and universities - no ifs, ands, or buts.

Paul R. Levy is president and CEO of the Center City District. plevy@centercityphila.org

To download State of Center City 2016, visit centercityphila.org/SOCC. For Center City Philadelphia Developments 2015-2019, visit centercityphila.org/

developments.