Construction jobs in Philadelphia could plunge soon as a result of a “glut” of residential projects finishing up with questionable demand waiting behind them, according to a new report from BisNow.
In fact, some developers are calling for a “hard crash” after a rush to capitalize on the city’s 10-year tax abatement program “temporarily sent activity into the stratosphere”.
Construction is bustling along the city’s main thoroughfares as teams tackle a large backlog of projects permitted before the expiration of a key tax abatement program in January 2022. Over 26,000 units were approved in 2021, a significant increase from 2020, with the work expected to conclude within the next 18 months, the report says.
Driven by low interest rates and the rush to meet the tax break deadline, a surge in construction began in 2022. Last year saw over 10,000 units hit the market, with another 16,000 upscale units expected to finish in the next 18 months.
However, new housing permits have dipped significantly, with only 949 issued in January and 986 in February across the Philadelphia-Camden-Wilmington region, per census data.
Vince Jolly, founder and president of CVA Commercial Group, said: “It’s not even anticipating a downturn. The downturn’s already here.”
He continued, telling BisNow: “I think construction workers, obviously, are going to get hit hard. Because once these jobs dry up, I mean, what else are they going to do?”
Construction employment in the city increased by 1.5% from 2021 to 2023, with 121,000 local workers in the trade by late last year, according to census data. However, new apartment construction starts have dropped over 30% from their late 2022 peak, and 99 projects comprising 17,000 units have been halted at the proposal stage, as per CoStar data.
The Riverwards Group Managing Partner Mo Rushdy commented: “That glut of apartments will solve itself, let’s say, by May 2025. The real problem is, No. 1, jobs. We hear from our friend in the trade unions and from others that projects are going to dry up in terms of the residential industry and when it comes to new jobs coming from the pipeline of ’26 and ’27.”
“I’ll tell you from experience, we’re not even seeking financing,” Rushdy added.
“I see the bigger players are starting to be impacted. Companies that were very profitable for the past couple of years are barely making it,” Calvin Snowden, founder and managing partner of Philadelphia-based construction management firm BDFS Group said.
“I’m an engineer, not an economist, [but] I know there’s a problem. I know the interest rates have to come down since the projects don’t make sense anymore. The numbers just don’t work.”
Despite nearly 100 multifamily projects being put on hold, such as Alterra Property Group’s 352-unit building in University City, some large projects are continuing. Notably, Tower Investments is progressing with its 1,111-unit project in Center City, which represents 6.5% of all units currently under construction in the metro area and is the nation’s 11th-largest ongoing apartment project.
However, large projects are becoming rare. Mark Cartella of Alterra Group suggests that the industry may see a decline in large-scale projects before smaller ones. Meanwhile, redevelopments are driving activity for Benchmark Construction Group, with projects underway in Fishtown and other areas of high demand like South and North Philadelphia, focusing on both new construction and existing housing.
Tyler Durden
Sun, 04/21/2024 – 14:35
