In the United States, cap rates are at record-lows, price-per-square-foot sales figures are at record-highs, and the volume of commercial real estate sales has nearly matched that of 2007, and has been falling.

Not that we see any indication of a downturn (locally or nationally): the Philadelphia metro is growing jobs at a faster rate than any of its Northeast or Mid-Atlantic counterparts. In fact, we may have more room for the economy to grow than we think (heck, Australia has gone 25 years without a recession; why not us?), but it seems like a reasonable time for a CRE investor, owner, or lender to reevaluate their exposure to a change in market conditions.

In order to experience less volatility in a downturn, our research has shown that metro areas with a high concentration of employment in Educational and Health Services (Eds & Meds) have exhibited a smaller decline in multifamily and retail rents during a downturn. For the full report see here.

We believe the effect extends to office markets, but that research is ongoing. Anecdotally, however, look at the growth in Downtown Philadelphia from Eds & Meds office tenants, including the University of Pennsylvania, CHOP, and extending to health insurers like Blue Cross/Blue Shield.

Why Eds & Meds?

Of the largest U.S. employment sectors, the Eds & Meds industry has been the only one to consistently see employment grow every year since at least 1940. That was before D-Day, when Franklin Roosevelt was President, and Las Vegas had approximately 8,400 residents.

Since landlords rely on tenants to pay their rent through a downturn, it follows that it may be beneficial to be exposed to this consistent engine of jobs. Philadelphia has the largest concentration of employment in Eds & Meds of the top 50 largest metro areas in the United States, and the growth keeps coming…