The Philadelphia Inquirer's Jacob Adelman looks at Mack-Cali's decision to bail on a 300-unit Center City project and whether the move is a bellwether of an overheated market.
In its most recent earnings call, Mack-Cali said it paid $800,000 to back out of the project with locally based developer Parkway Corp., citing tepid rent growth and the high cost of construction. As the Philadelphia market begins to slow in absorption, this decision could be just the start of more cancelled projects to come.
"You've seen at least one project that's put the brakes on development, and that could lead to others doing the same," said William Rich, a director at the Washington-based real estate tracker Delta Associates. "This could be the leading edge."
Philadelphia is not alone among cities with resurgent downtowns that are now facing the threat of oversupply, said Hans Nordby, a managing director at real estate research firm CoStar Group. Dense urban enclaves such as downtown Los Angeles and the central parts of Houston and Nashville are seeing their markets cool, he said. As a result, asking-rent increases nationwide are forecast to decline through at least 2020, according to CoStar.
"Your urban, fashionable, everybody-wants-to-live-there neighborhood was so good for so long . . . that now it's become a little overheated," Nordby said. "In many cases, developers have gotten religion and they're starting to shut down supply."