King for a Quarter: Industrial Takes Philly CRE Throne

For the first time, Philadelphia’s industrial property values exceeded its multifamily values, according to Costar. It’s an acknowledgement of how far the industrial sector has come in the city, even if its reign over other commercial sectors may be short-lived.

As of the fourth quarter, the city’s industrial properties are valued at a collective $77.8 billion, according to the report. Trailing closely behind are the city’s multifamily properties, valued at $75.9 billion cumulatively.

The gap between the two sectors has closed considerably over the years. Three years ago, multifamily led the charge in values, with the closest sector a sizable $17 billion behind.

Forces have pushed the multifamily and industrial sectors in opposite directions since the pandemic.

Rising interest rates have proven difficult for the multifamily sector to overcome. Values peaked in 2022 in Philadelphia at $88.3 billion, but have declined by 14 percent since. Higher borrowing costs have eaten into yields for residential landlords.

On the other hand, Philadelphia has shown itself to be an industrial hub in recent years and values have risen by more than $6 billion since the start of 2022. Partially, the market is being lifted by factors helping the sector across the country: rising e-commerce and a need for last-mile warehouses. But the city also benefits from reshoring initiatives and its strategic location.

While it’s a celebratory moment for industrial real estate owners in Philadelphia, multifamily players have reason for optimism. The market is beginning to turn back in their favor, particularly as the Federal Reserve continues to cut interest rates after months of steady gains.

— Holden Walter-Warner