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TechViewPoint April2015 PDF
TechViewPoint April2015 PDF
Tech Trek:
A Walk Through Some
of Philadelphias Top
Tech Clusters
Ian Anderson
Director of Research and Analysis
Lauren Koshgarian
Senior Research Analyst
This report highlights nine of the major tech clusters around the
Greater Philadelphia area1.
Our study focuses on the 313 technology companies that populate
this landscape.
In our research, weve found that the majority of tech companies
in these market clusters are early-funding and startup firms
(44.4%).
The majority of tech tenants in this zone are SaaS (software-as-aservice) companies (41.8%).
The majority of tech tenants in these clusters are located in Class
A (56.8%) Office space.
1
The geographic clusters selected were chosen either becasue they represent the most established tech clusters in the region, or because
they are emerging tech clusters that offer a point of comparison to their more established counterparts.
313
COMPANIES
REPORTED
BUILDING
CLASS
BUILDING
TYPE
Class A: 56.9%
Class B: 33.9%
Class C: 9.3%
Office: 91.1%
Retail: 1.9%
Other: 7.0%
FINANCIAL
MATURITY
(
, EMERGING,
ESTABLISHED)
44.4%
31.3%
24.3%
TENANT
MIX
(
, IT SERVICES, SOFTWARE)
22.7%
35.5%
41.8%
CURRENT TECHNOLOGY
TENANTS IN THE MARKET:
55% of them are looking for space under 25,000 sq. ft.
30% are looking for space between 26,000 and 60,000 sq. ft.
15% are looking for space from 61,000 sq. ft. and up
* We define startup as young, smaller firms with little to no investment funding and revenues below $10 million. We define emerging companies
as firms with revenues between $10 million and $100 million. Finally, we define established tech companies as firms with revenues exceeding
$100 million or those that are publicly traded.
TECH CLUSTERS
SUBMARKET
TECH ALLEY/
ROUTE 202 CORRIDOR
INNOVATION OUTPOST/
PLYMOUTH MEETING AND
BLUE BELL
BUILDING
CLASS
BUILDING
TYPE
Class A: 60.6%
Class B: 32.6%
Class C: 6.8%
Office: 91.6%
Retail: 0.8%
Other: 7.8%
Office: 90.5%
Other: 9.5%
Class A: 77.6%
Class B: 18.4%
Class C: 4.0%
Office: 93.9%
Retail: 2.0%
Other: 4.1%
UNIVERSITY CITY
Class A: 21.4%
Class B: 71.4%
Class C: 7.2%
Office: 92.9%
Other: 7.1%
CENTER CITY
Class A: 70.2%
Class B: 23.4%
Class C: 6.4%
Office: 89.36%
Retail: 4.26%
Other: 6.38%
NAVY YARD
Class A: 33.3%
Class B: 58.4%
Class C: 8.3%
Office: 91.7%
Other: 8.3%
Class B: 33.3%
Class C: 66.7%
Office: 83.3%
Retail: 16.7%
MIDTOWN VILLAGE
(
, EMERGING,
ESTABLISHED)
37.1% 35.6%
27.3%
Class A: 47.6%
Class B: 45.2%
Class C: 7.2%
TRANSIT TECH/RADNOR
AND CONSHOHOCKEN
FINANCIAL
MATURITY
TENANT
MIX
(
, IT SERVICES,
SOFTWARE)
COMMUTE
TYPE
(CAR, PUBLIC,
PEDESTRIAN-FRIENDLY)
28.8% 39.4%
31.8%
11.9%
31.0% 33.3%
35.7%
34.7% 46.9%
18.4%
14.3%
38.1%
47.6%
22.5% 38.8%
38.8%
7.1%
28.6%
64.3%
85.7%
29.8%
25.6% 44.7%
19.1%
36.2%
44.7%
8.3%
25.0%
16.7% 58.3%
16.7%
25.0%
33.3%
83.3%
66.7%
50.0%
16.7%
NOLIBS
NORTHERN LIBERTIES
N3RD STREET
Class B: 25.0%
Class C: 75.0%
Office: 75.0%
Retail: 25.0%
Class B: 57.1%
Class C: 42.9%
Office: 85.7%
Retail: 14.3%
100.0%
14.3%
25.0%
75.0%
14.3%
28.6%
85.7%
57.1%
Philadelphias startup scene is showcasing itself as a major part of the real estate market
and becoming vital to the continued success of the local economy. The area has a
pulsing energy in the startup realm and our research indicates that its not just confined
to city zones. Were seeing startups and early funding companies residing in the suburbs
as well.
In our research, weve tracked the progression of local companies moving from startup
to investment growth to successful exit and we expect to see more M&A and funding
activity in the coming year. With each stage of advancement for a company, real estate
decisions are directly tied into corporate growth plans. Suburban companies continue to
open satellite offices in the city to lure urban talent, but these established firms still
keep a steady presence and a large footprint in the suburbs. While emerging firms are
spread fairly evenly throughout the region, startups and early funding companies
continue to represent the majority of tech firms in the city.
The growth of the local tech sector is positively impacting Philadelphias commercial
real estate market. Older suburban buildings are being eyed for renovation while
industrial, retail, and mixed-use space in the city experience redevelopment and a surge
in tech tenants of all stages and sizes. Philadelphias successful co-working space also
continues to expand and we expect this trend to remain steady and begin trickling out
into the suburbs as well.
With established tech firms expanding their presence in the city, startups joining the
large coworking community, and emerging firms moving from mixed-use retail spaces
to creative and office space, Philadelphia is emerging as a tech hub. In our research, we
concentrate on three primary tech sectors: IT Services, Software, and Software-as-aService. Philadelphia is a highly connected, very networked city and companies that
establish themselves in these three categories can find a number of local clients that
otherwise might be difficult to track down in a larger city.
WHY THE CITY FOR TECH:
In contrast to a decade ago, the city is now emerging as an epicenter for tech
entrepreneurs, venture capitalists, and a highly educated, millennial workforce that is
expected to grow the local community for years to come.
Many technology tenants in urban areas are startups and lack adequate credit.
Landlords usually want to see already profitable tenants who can show positive cash
flow and/or liquidity prior to leasing them space. Because of this, startups must choose
spaces that make sense for them and their financial situation. Among Detroit,
Baltimore, DC, NYC, and Boston, Philadelphia has the highest growth rate of proprietors
without employees (63.5%)2. This helps grow a major startup-friendly community in the
local area.
The tech sector is also quite possibly the most competitive market in terms of attracting
and retaining talent, so companies use their buildings and their locations to reflect
wider incentives for why personnel should join their company. Tech companies tend to
put down roots in areas that will please their talent, including a trendy, up-and-coming
area, after-5 / live-work-play neighborhood, and the unique industrial- style attributes of
buildings.
Tech companies were possibly the first tenants to prefer open layouts, collaborate
spaces, loft-like ceilings, and exposed brick walls and wood beams. What previously
would have been described as mixed-use industrial space in the late 1990s now holds all
of the attributes of a Class A creative workspace for top talent. The atmosphere and
layout are already here in much of Philadelphias neighborhoods. In our research, weve
focused mainly on University City, Center City, Navy Yard, Midtown Village, Northern
Liberties, and N3rd Street.
U N I V E R S I T Y C I T Y: As the academic heart of Philadelphia, University City is known for
its young, tech-savvy workforce and its growing startup community. The majority of tech
tenants here are SaaS (64.3%) and startups (85.7%), and can be found in Class B office
space (71.4%). A portion near 30th Street Station is a Keystone Innovation Zone and its
close proximity to the University of Pennsylvania and Drexel University makes it an
attractive area for startups looking for young tech talent. The amenity base in this area
ranges from its popular street-food scene to higher-end dining establishments, art
galleries, and a lively nightlife.
Technical.ly Philly, Phillys city wage tax just turned 75. Heres its dubious legacy. December 12, 2014.
and with their new innovation tower, other tech firms small and large alike will likely
either expand their footprint or move their location nearer to this market. The most
popular space for tech tenants here tends to be Class A office, but we have seen a few
reside in older spaces above retail as well. Companies here are closely split between SaaS
(44.7%) and IT services (36.2%) and the majority are in the startup and earlier funding
stages (44.7%).
N AV Y YA R D : Known as one of the hottest corporate centers in Philadelphia, the Navy
Yard is a modern business campus filled with customizable, sustainable, and one-of-akind spaces. Unlike other areas weve looked at, the Navy Yard offers companies
flexibility for growth and generous expansion to remain in the community. The area is a
Keystone Innovation Zone and it can accommodate expansion and growth with the
capacity to develop another 4 million sq. ft. of office space. The properties are a mixed
use of space including Office, Industrial, Manufacturing, and Research and
Development. The Navy Yards growing list of amenities includes parks and recreation
and a hotel on-campus, making it an increasingly attractive area for notable companies
like Revzilla, Benjamin Franklin Technology Partners, and American Systems. The Navy
Yards location is almost suburban due to its distance to Center City but the Philadelphia
Airport is fairly close and I-95 access is excellent. The majority of tech tenants here tend
to be SaaS (66.7%) and the majority are in the startup and early funding stages (58.3%).
P LY M O U T H M E E T I N G A N D B L U E B E L L I N N OVAT I O N O U T P O S T : Plymouth
Meeting and Blue Bell are centrally located and known for their major business parks,
good neighborhoods, and expansive highway system. Its strong amenity base of large
and small-scale retail, dining, and entertainment make it a popular area for corporations
to call home. Notable companies include Pet360, Unisys, UniTek, and Xerox. Here, IT
services (47.6%) are the most popular tenants with SaaS following closely behind
(38.1%) and the properties are a mix between Class A (47.6%) and Class B (45.2%) office.
In terms of maturity, there is a surprisingly even mix between startup (33.3%) and
established (31.0%), but emerging companies edge them out slightly at 35.7%.
are known for their trophy Class A properties and their excellent transportation system
with access via I-476 and the regional rail system. Both areas have a strong amenity base
with lots of walkability, creating a more urban-like environment tucked within the
suburbs. High-end suburban areas house the executive decision-makers which adds to
the areas appeal. There is continued strong demand in the market and inventory is
tight. Land costs and barriers to new development are high, which increases rents.
Conshohocken and Radnor remain appealing to employers, as a young and educated
workforce surrounds them with nearby suburban universities like Villanova, Haverford,
and Bryn Mawr. Tenants in this market include a high number of public or established
companies (34.7%), including Qlik Technologies, Capgemini, Gartner, and eMoney, but
startups and early funding companies (46.9%) still manage to outrank them. We think
this could be due in part to the M&A activity here, including Compoze Software (acquired
by Oracle), Empathy Lab (acquired by EPAM Systems), Phase Forward (acquired by
Oracle), and Quintiq (acquired by Dassault Systems). The majority of tenants reside in
Class A (77.6%) office properties.
Data for the above report was drawn from CrunchBase, Inc5000, CoStar, and CBRE Research.
For more insight into the Philadelphia tech market, see our February research report, Changing
employment patterns in Phillys tech industry.
Ian Anderson
Director of Research and Analysis
+1 215 561 8997
ian.anderson2@cbre.com
Lauren Koshgarian
Senior Research Analyst
+1 215 561 8932
lauren.koshgarian@cbre.com
Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not
verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is
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