- The City of Brotherly Love is known for much more than its cheesesteaks, the Eagles, and “Its Always Sunny in Philadelphia”.
- Philadelphia, which is one of America’s top 10 metros, has a robust commercial real estate market due to a variety of factors that keeps the city positioned to support long term growth.
- As capital markets recalibrate after rate cuts, and investors look for cities with durable fundamentals, executional depth, and long-term demand drivers, Philadelphia stands out.
In a more disciplined investment environment, cities with strong executional track records, diverse demand drivers, and active development pipelines are pulling ahead. Rather than relying on momentum or speculation, Philadelphia’s commercial real estate market is supported by history, institutional grade product, and a structure that enables deals to transact. As we head into America’s 250th birthday, this founding American city is one to watch.
At George Smith Partners, we are extremely bullish on the city’s CRE outlook and are ready to support owners, developers, and institutions who want to expand their local portfolio or enter for the first time.
Eds, Meds, and Beds: The CRE Trifecta
The ultimate insulator in any CRE market includes three core elements: educational institutions, medical facilities, and places where people live or vacation. In the industry, we refer to this as “Eds, Meds, and Beds”, and Philadelphia has all three. The education and medical sectors are key drivers of local economies, which typically provide jobs that are sheltered from periods of economic downturns. This proliferation within the city of Philadelphia, which is known for world class institutions of higher learning, cutting edge hospitals and medical facilities, and housing, highlights real estate that will always be buoyed by demand. College enrollment is countercyclical, which means that when the broader economy slows, enrollment goes up.
These “anchor institutions”, as the former President of the Federal Reserve Bank of Philadelphia Patrick Harker put it in 2022, are:
- Labor intensive
- Protect against downturns
- Are major boosters to local economies
Many of these anchor institutions foster high-tech growth and investment, and spill over to other sectors outside of real estate. As a historic American city, attractions, conventions, and other events draw tourists in and support the local hospitality industry.
Conversion Plays and New Developments
GSP shared a recent video on the conversion environment we see in Philly, which is unique compared to other cities. Conversions in Philadelphia have been widespread since the 1950s, when old mills and factories were first converted to residences. Over time, the city’s long-standing tax abatement program, combined with a commitment to preserving historic architecture, has fostered a conversion-friendly environment. This has resulted in millions of square feet of obsolete office, hospitality, and industrial space being repositioned into residential and mixed-use assets.
Beyond conversions, what makes Philadelphia particularly compelling in today’s market is that this momentum is not limited to legacy assets. We are witnessing meaningful uptick in new development projects in the greater Philadelphia MSA. The attached map shows development projects completed, under construction, or proposed as of December 2024.
A fantastic project to highlight is Schuylkill Yards (shown below), which is one of the many noteworthy developments in the city. The focus on mixed-use and transit-oriented development is a key differentiator between Philadelphia and other major cities. This particular initiative will add 1.5M SF of living space, and over 6 acres of green space to an emerging area of central Philadelphia right across the water from 30th Street’s Amtrak and SEPTA station.
Dozens of projects beyond this one, spanning residential, commercial, healthcare, education, and more have gone online or are in the works- which is a testament to the ability of developers in the city to secure financing, and partner with the city.
Capital Markets and Why it Matters
From a capital markets perspective, Philadelphia’s eds, meds, and beds ecosystem underpins both stability and consistent rent growth across multiple asset classes. Large university systems, healthcare networks, and a growing residential base support stable occupancy today while creating long-term pricing power as new supply is absorbed. This dynamic is particularly relevant in Philadelphia, where rent growth has lagged relative to peer coastal markets and is only now entering a more normalized expansion phase.
This context materially shapes financing outcomes. Adaptive reuse projects often require bespoke capital stacks, which combine tax incentives, construction financing, and structured equity. On the other hand, ground-up multi developments benefit from relative affordability and the ability to underwrite rent growth that remains ahead of the market’s current pricing. As capital becomes more selective, Philadelphia stands out as one of the few major metros where investors can still underwrite both current yield and embedded rent growth, supported by institutional demand drivers rather than speculative assumptions.
For developers and operators active in the market, aligning capital strategy with these demand fundamentals and rent growth dynamics is critical to execution. I’m always happy to connect with groups evaluating conversions, new development, or recapitalizations to discuss how thoughtful structuring and timing can unlock long-term value in Philadelphia.
And if you’ve made it this far, go birds!
