Flexible, more affordable office space helps make the case for growing a biz in Philly - Technical.ly Philly

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Dec. 26, 2018 11:00 am

Flexible, more affordable office space helps make the case for growing a biz in Philly

Pit Center City's office rent prices against San Francisco and New York, and you'll be happy you're not there. But comparable affordability aside, what is Philly like as a commercial real estate market?

The Philly skyline.

(Courtesy photo)

When Rick Nucci’s startup Guru outgrew its foundational Old City digs, the company reviewed its options and ultimately decided on a 6,000-square-foot Center City office two blocks south from City Hall.

For Nucci, a local tech ecosystem booster who previously presided over Philly Startup Leaders, there wasn’t much convincing needed on which city to base his company’s main headquarters in. But aside from Nucci’s ties to the area and attraction to the Philly music scene, the decision also made sense from a commercial real estate standpoint.

“The real estate market here is just almost incomparably better to the other tech hubs,” Nucci said. “Anytime I have a mini grievance, I talk to investors who live in New York on San Francisco and they bring me back down to reality. Here we also found flexibility with landlords to let us build out the space, and get our employees into a space where they genuinely feel welcome.”

It’s a similar spiel to what you’ll hear from healthcare tech founder Brianna Wronko, whose venture-backed company Group K Diagnostics was ultimately able to find in Philly the spots she needed to grow her startup — from coworking space to private office, despite some obstacles along the way.

These two founders’ experiences shine a light on two selling points for Philly as a commercial real estate market: considerably lower real estate costs than the major tech hubs — minus the dizzying talent turnover — and a varied inventory help make the case for the city as a location. From shiny “class A” offices and open-floor-plan creative studios in the soaring skyscrapers of Center City to sprawling corporate office campuses out on the Main Line, Philly and its suburbs are home to some 137 million square feet of office space, per stats from real estate research firm JLL.

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Philly entrepreneurs paid an average of $31.64 per square foot of office space, while New York execs paid more than double that, at $76.33 per square foot.

For context, New York far outranks Philly in real estate availability, with over 448 million square feet of office space. Still, among cities with comparable populations — like Phoenix, Ariz., at 88 million square feet or San Antonio, Texas, at 31 million — Philly holds its own.

But what does “more affordable” really look like? During the third quarter of this year, entrepreneurs on Philly’s (Central Business District) paid an average of $31.64 per square foot of office space, while New York execs paid more than double that, at $76.33 per square foot. In Washington, D.C., entrepreneurs doled out $60.75, while in San Francisco the stat is a whopping $79.21 per square foot.

Lauren Gilchrist, senior VP and senior director of research at JLL’s research arm, said Philly is widely known to represent a significant discount when compared to other hubs. Supply, she said, is likely to continue growing in Philly.

“The market cycle continues to move in a positive direction,” Gilchrist said. “I don’t anticipate that the next year will be any different.”

Philly’s comparable affordability and access to real estate options are frequent selling points in our city’s stump speech. Both were prominently included in the City of Philadelphia’s pitch to the Amazon HQ2 bid process. Specifically, the City pushed the Navy Yard and Schuylkill Yards locations but, despite generous tax incentives, the ecommerce titan chose to split its headquarters between New York and Virginia.

Access to talent and institutions of power, rather than dollars and cents, ended up swaying the decision away from Philadelphia.

But ultimately, for many founders, Philly will triumph in any case regardless of how much rent costs.

“Philly’s home,” said Chain.io cofounder CEO Brian Glick. “My team, myself, my family, we love it here. We weren’t going to go elsewhere for a tax break or a theoretical benefit. Our hearts are here, and we should be here.”

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