3 min read April 2024 — Newmark Executive Vice President and Market Leader of the Greater Philadelphia Region, Lauren Gilchrist, talked to Invest: about the state of the commercial real estate market in Greater Philadelphia. She also mentioned how alternative real estate sectors such as medical office, self-storage, and life sciences have gained importance due to increasing uncertainty and the constraints that the current economic environment poses for multifamily, retail and office buildings.
What role does Newmark facilitate in the Greater Philadelphia area?
I became the EVP and Market Leader for Newmark in Greater Philadelphia in January 2023. It has been exciting to walk into such a diverse, powerful organization to increase its market share and revenue. It is an interesting challenge to take on at this moment in the market cycle of commercial real estate. Newmark is a third-party commercial real estate services firm, so we do anything that an owner, tenant, or investor would outsource, including leasing for both landlords and tenants, property management, construction project management, investment sales and debt and structured finance transactions, among other services.
Finding opportunities within Philly and our business right now is radically different from what it was 24 months ago. The commercial real estate market in Philadelphia is experiencing uncertainty due to a large volume of debt maturities in all asset classes of the commercial space. There was significant investment sales activity seven to ten years ago, and the debt on those investments is now maturing. Additionally, there is a decrease in office occupancy rates due to changing workplace strategies and a slowdown in the multifamily capital markets due to high interest rates that are nevertheless paired with an all-time high demand for housing.
Where does Newmark find the overarching opportunities for market expansion in Philadelphia considering the current challenging economic environment?
We are the national leader in alternative spaces when it comes to real estate. Considering that offices, multifamily, industrial and retail are our four primary asset classes, we have a tremendous amount of market share in alternative classes such as medical, life sciences, data centers and self-storage, among others. We have seen significant corporate success in these spaces.
How would you describe the current situation of the primary commercial real estate asset classes in Greater Philadelphia?
There is still an opportunity within the city and the region to lease quality multifamily developments. The higher interest rate environment is a challenge that also affects consumers. They are experiencing low housing inventory volumes and a rise in the costs of purchasing their own homes. These factors point to a demand for multifamily across the region. Even though Philadelphia lost some of its population during the pandemic, people want to live in cities in the long term and we expect that they will return.
We also continue to see opportunities in industrial. Several projects within the city and the region will likely begin and lease well due to e-commerce and third-party logistics companies optimizing their supply chains. As retail structural shift toward e-commerce continues, we anticipate solid demand for industrial real estate while the supply pipeline has grown to provide some market equilibrium in that sector. Additionally, for owners and operators who have an appetite for distressed office buildings, there will be a significant volume of opportunity over the next 24 months as the market determines what obsolete office buildings will be converted to multifamily or hotels or torn down to make way for higher, more productive land uses.
What kind of opportunities does the growth of the life sciences sector in Greater Philadelphia bring for Newmark?
Philadelphia has been one of the strongest secondary life sciences markets in the country for some time now. Philadelphia has roughly seven million square feet of third-party owned and operated lab, which makes it one of the strongest lab clusters in the U.S. While we have not seen as strong of leasing demand in the last 24 months as we may have initially expected, we expect that demand will return once interest rate pressures ease and the venture capital community loosen the reins on life sciences companies’ ability to invest in real estate. Philadelphia is well positioned from a life sciences talent perspective, and this strength has brought some new companies from outside the city and outside the U.S. to the area.
What new policies or regulations is Newmark looking out for due to its potential effects on its client portfolio?
When I look at the regulatory environment, I focus on what could come from the government that impacts the ability to invest in and develop commercial real estate in our region. At the state level, we are focusing on how to manage the potential vacant building distress that may come down the pike due to the current dislocation in the office market. There are conversations on how to manage the confluence of office tenants downsizing, loans maturing, and buildings transitioning out of their productive lives. We need to have a holistic conversation with local and state governments to figure out how to sustain the quality of our communities and the revenue that our governments require while creating an attractive experience for tenants and residents.
What is the outlook for Newmark and the Greater Philadelphia commercial real estate landscape for the next couple of years?
The outlook at Newmark is extraordinarily sunny both in Greater Philadelphia and nationally. We have some of the best professionals in the business and lots of room to grow both in terms of talent and market share. We have made some major strategic hires, especially in our capital markets platform. We have the opportunity to pick up not just talent but business in this environment. Newmark is a great place to be a broker, and I am excited about the momentum that we expect to experience over the coming year.
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