Philadelphia Is Among the Top Metropolitan Areas in the US for Industries to Most Likely Survive and Eventually Thrive Following This Crisis

By Adrian Ponsen CoStar Analytics
The coronavirus spread has reintroduced factors absent from Philadelphia's economy for almost a decade: widespread fear and uncertainty. As we are early in the onset and short on government data points collected after the virus' spread, any market analyst worth his or her salt will admit there will be a deluge of question marks hanging over the economic outlook during the next month or two.

However, it's still constructive to take stock of what we do know, in order to build up as clear a picture of the road ahead as possible.

First off, a painful near-term decline in Philly's economic figures is all but certain for this spring. To curb the virus' spread and prevent hospitals from being overwhelmed with patients, Pennsylvania and New Jersey governors both ordered all nonessential businesses to close on March 16.

How long are these monumental measures likely to stay in place? China’s aggressive lockdown measures lasted about two months. The CDC recently recommended cancelling or postponing any gatherings of 50 scheduled through mid-May. Johns Hopkins University School of Medicine’s infectious disease expert Morgan Katz expects meaningful improvements by early May. Meanwhile, Treasury Secretary Steven Mnuchin is at the center of the White House’s economic response to this crisis and says Republican senators’ proposed coronavirus relief bill, now under debate in the congress, aims to cushion businesses for 10-12 weeks of serious disruption. That would take us through early to mid-June.

Regardless of how long these shutdowns last, the leisure/hospitality sector and retail trade sectors will likely be some of the worst-affected major industries. They represent 10% and 8% of Philadelphia total employment, respectively.

Hit by department store closures and the shift to automated or online checkout, Philadelphia's retail employment was already on the decline before the onset of the virus. Considering how many national retailers’ balance sheets had already been eroding prior to the onset of this crisis, the retail market’s road ahead looks like a painful one.

Leisure and hospitality employment, supported mostly by restaurants, bars and hotels, had been one of the metropolitan area's fastest-growing employment sectors. Center City's blossoming nightlife has been a key ingredient to Philadelphia economic revival over the past 15 to 20 years. The fact that the industry is now at such high risk is probably the biggest existential threat posed by the coronavirus to Philadelphia’s ongoing revival.

But overall, the coronavirus and its accompanying economic shock do not pose major threats to the fundamental drivers of Philadelphia's economic renaissance over the past 15 to 20 years.

Philadelphia's industry mix positions it better than the vast majority of major U.S. cities to weather the negative economic impact of the coronavirus. Very few major U.S. markets have higher concentrations of the sector including healthcare, professional and business services which will likely remain most resilient in the months ahead.

Meanwhile, Philadelphia has relatively lower concentrations of the sectors now most at risk such as leisure and hospitality, retail and oil and gas extraction.

The city's status as a powerhouse of healthcare innovation only gains renewed importance as a result of the current tragedy and will be a key economic benefit as the number of U.S. residents aged 70 and older grows by 40% over the course of this new decade.

Meanwhile, the cost of living differential between Philadelphia and its nearby competitors, New York, Boston and Washington, D.C., remains massive. Philadelphia will continue to attract large net inflows of college-educated young adults moving from these places in search of more spacious housing and higher savings/disposable income.

In other words, for firms able to remain on offense during what will undoubtedly be challenging months ahead, Philadelphia remains an attractive destination for real estate investment capital seeking stable long-term growth, especially when stacked against other major metropolitan areas in the U.S.
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