Economic impact of commercial construction 03252016

ECONOMIC IMPACT OF NEW COMMERCIAL CONSTRUCTION AND MAJOR RENOVATION 2016

REPORT SUBMITTED TO: General Building Contractors Association 36 South 18th Street Philadelphia, PA 19103

REPORT SUBMITTED BY: Econsult Solutions 1435 Walnut Street Philadelphia, PA 19102

GBCA| Economic Impact of Commercial Construction in Philadelphia

TABLE OF CONTENTS Table of Contents..............................................................................................................................i Executive Summary ......................................................................................................................... ii 1.0

Introduction ........................................................................................................................... 1 1.1 1.2 1.3

2.0

Development Activity .......................................................................................................... 3 2.1 2.2 2.3 2.4

3.0

Economic and Demographic Trends ....................................................................... 3 National Employment Trends ..................................................................................... 4 Regional Construction Trends .................................................................................... 5 Philadelphia Trends ..................................................................................................... 7

Economic Impact From Construction .............................................................................. 11 3.1 3.2 3.3 3.4

4.0

General Building Contractors Association ............................................................... 1 Current Development Boom in Philadelphia ........................................................... 1 Report Overview .......................................................................................................... 1

Direct Construction Activity ..................................................................................... 11 Input-Output Methodology ...................................................................................... 12 Economic Impact ...................................................................................................... 12 Fiscal Impact .............................................................................................................. 15

Conclusion ........................................................................................................................... 17

Appendix A – Input-Output Methodology .............................................................................. A-1 Appendix B - About Econsult Solutions, Inc. ............................................................................ A-3

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GBCA| Economic Impact of Commercial Construction in Philadelphia

EXECUTIVE SUMMARY The Philadelphia region is experiencing a significant amount of investment in new commercial capital stock. New construction and major renovations includes all use types and many are transformative and place making. Developments across the region include new office, hotel, retail, residential, and recreational components. The new developments are following trends in planning, building and design, for a more integrated, personal interactive experience with people, buildings, and space.

Commercial construction in the past three years has generated an estimated economic impact of $6.5 billion in the City of Philadelphia and $13.6 billion in the Five-County Philadelphia Region. This construction has generated an estimated $107 million in business, wage and sales taxes to Philadelphia and $331 million in taxes to the Commonwealth of Pennsylvania.

Not captured here, but also important to note is that significant impact the new commercial development will have on the growth of the real estate tax bases and on future business and income tax bases through new business and resident attraction.

There are many more commercial construction projects just announced or about to start. A few projects even have ten to 20 year build out periods with multiple commercial components that will continue to generate a significant economic impact to the region directly. The new, efficient commercial stock will have an even greater economic impact on the region by improving the region’s competitiveness in attracting new businesses and residents.

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GBCA| Economic Impact of Commercial Construction in Philadelphia

1.0 INTRODUCTION 1.1

GENERAL BUILDING CONTRACTORS ASSOCIATION

As one of America’s oldest trade associations, General Building Contractors Association (GBCA) advances commercial construction in the Philadelphia region by serving as a powerful voice, an industry watchdog and a critical resource. Established in 1891, the GBCA is the Philadelphia chapter of the Associated General Contractors of America (AGC). GBCA provides more than 300 member companies with access to proven advocacy, networking opportunities, safety services, education and training programs. Members of the GBCA are all commercial, industrial, or institutional general contractors, subcontractors, material suppliers, or construction service firms located in southeastern Pennsylvania, northern Delaware, southern New Jersey, northern Maryland and the eastern shore.

1.2

CURRENT DEVELOPMENT BOOM IN PHILADELPHIA

The City of Philadelphia is experiencing revitalization as recent population growth and a burgeoning dining and recreational scene has generated much excitement. Philadelphia's population has been increasing for the last nine years after experiencing massive population loss during the 60 years prior. Since 2006, Philadelphia’s population has grown by seven percent and is forecasted to continue to grow.

As population has grown, developers have taken advantage of the new demand for residential, office, and retail space by upgrading and adding to the city’s physical capital stock. The development boom in the city, both residential and non-residential, has added numerous housing, shopping, dining, and recreation options for the growing population. To a large extent, the increase in demand is facilitated by more efficient stock of capital infrastructure. The demand, fortunately, continues to outpace the growing supply. As the city’s population and economic activity continues to grow, the area will depend on continued development. To sustain that level of growth, there will need to be continued investment in Philadelphia’s capital stock.

GBCA members are building the new efficient buildings that make Philadelphia’s metroeconomy more competitive.

1.3

REPORT OVERVIEW

This report quantifies the economic impact of commercial construction industry from 2013 to 2015 in Philadelphia, the Five-County Region of Bucks, Chester, Delaware, Montgomery, and Philadelphia counties, and Pennsylvania. The report also looks at trends in construction, spanning from before the recession to forecasts about the industry. Section 2 of the report provides several different indicators of construction now, pre- recession, and forecasts of growth

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GBCA| Economic Impact of Commercial Construction in Philadelphia

in the industry. Section 3 analyses the economic impact of the past three years that commercial construction have generated.

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GBCA| Economic Impact of Commercial Construction in Philadelphia

2.0 DEVELOPMENT ACTIVITY 2.1

ECONOMIC AND DEMOGRAPHIC TRENDS

The composition of the metropolitan population is changing significantly. There have been significant trends in the population based on age groups throughout the region. Millennials (ages 20 to 34 years old) and seniors (ages 55 years old and above) are increasing. From 2006 to 2012, the millennial population grew by over 100,000 driving the overall population growth in Philadelphia, with Philadelphia experiencing the largest growth in millennials among the largest US cities.1 The Philadelphia region is also experiencing the largest metro-to-metro shift of those from the New York metropolitan area moving to the Philadelphia region.2 Regional forecasts suggest that the population growth will be sustained for another 20 years (see Table 2.1).

TABLE 2.1 – POPULATION PROJECTIONS, 2020 – 2035 Forecast

2020

PCPC Regional Forecast3

6,640,000

DVRPC Regional Forecast4

5,777,661

2030

2035

6,900,000

7,000,000

Percent Change (2020-2035) +5%

6,098,853

6,197,417

+7%

2025

5,935,259

Source: PCPC (2011), DVRPC (2012)

These two shifts in population are helping drive the recent boom in construction in the Philadelphia region for new commercials capital stock. The changing and growing population, continued efficiency gains of technology, blurring the lines between jobs and personal lives, and an environmentally conscious populous, has created demand to live near work and recreational opportunities.5 As part of this new/updated, amenitized, and energy efficient buildings are needed. In Philadelphia in particular, the commercial office stock has seen little to no growth since the Comcast Tower was built in 2008. Some of the office and industrial capital stock was converted into residential units, as Philadelphia did not see any major business growth for several years.

As millennials are staying and coming into the region, and baby boomers are moving into the more densely populated towns and cities in the metro region, developers are feeling the Pew Charitable Trusts, “Millennials in Philadelphia,” January, 2014: http://www.pewtrusts.org/~/media/legacy/uploadedfiles/wwwpewtrustsorg/reports/philadelphia_research_initiative/PhillyMillennialsReport01221 4pdf.pdf 2 http://www.phillymag.com/business/2015/09/29/philly-construction-boom/ 3 Philadelphia City Planning Commission, Philadelphia 2035: The Comprehensive Plan, 2011: http://phila2035.org/wpcontent/uploads/2011/06/summaryVision.pdf 4 The Delaware Valley Regional Planning Commission, Our Region , 2010: http://www.dvrpc.org/OurRegion/ 5 http://articles.philly.com/2015-12-07/business/68812247_1_millennials-unemployment-rate-payroll-gains 1

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GBCA| Economic Impact of Commercial Construction in Philadelphia

demand for a more user-oriented experience when it comes to capital infrastructure and businesses are seeing the value of the strong and diversified workforce the region has to offer.

To retain and attract businesses, new capital stock is needed as the area’s office, hotel, multifamily residential, and retail stock has a backlog of older, outdated capital stock, which must be renovated or replaced in order for the region to remain competitive. While the Philadelphia construction boom has been prominent in the news, significant new private and public commercial construction is underway or has been announced all over the region, including in Conshohocken, King of Prussia, Media, Doylestown, and West Chester to name a few.

2.2

NATIONAL EMPLOYMENT TRENDS

There are several different indicators by which to measure the current level of construction in Philadelphia and the region. The recession meant loss of construction jobs, with many former construction employees retraining for jobs in other industries. Even though employment level have not returned to pre-recession levels, numbers are rising again, and nationally they are expected to be one of the fastest growth industries (see Figure 2.1 and Table 2.2). Several occupations in the healthcare industry are also expected to see significant employment growth.

This is true in Philadelphia as well, along with University employment growth as evidenced by significant capital investments being made by the city’s healthcare and educational institutions in University City and just outside of Greater Center City. In addition, nationally, office, hotel, and retail construction experienced several years of growth post-recession, with square footage gains reaching pre-recession levels in 2014.6 FIGURE 2.1 – NATIONAL CONSTRUCTION EMPLOYMENT (2006 -2015) 100,000

Employees (thousands)

90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: U.S. Bureau of Labor Statistic, Data Series Report (2016)

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http://www.ecmag.com/section/your-business/2015-construction-outlook-economic-recovery-finds-its-footing

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GBCA| Economic Impact of Commercial Construction in Philadelphia

TABLE 2.2 – EMPLOYMENT IN OCCUPATIONS WITH THE MOST PROJECTED JOB GROWTH, 2014–2024 (NUMBERS IN THOUSANDS) 2014 National Employment Matrix title Total, all occupations Personal care aides Registered nurses Home health aides Combined food preparation and serving workers, including fast food Retail salespersons Nursing assistants Customer service representatives Cooks, restaurant General and operations managers Construction laborers Accountants and auditors Medical assistants Janitors and cleaners, except maids and housekeeping cleaners Software developers, applications Laborers and freight, stock, and material movers, hand

Employment 2014 2024 150,539.90 160,328.80 1,768.40 2,226.50 2,751.00 3,190.30 913.5 1,261.90 3,159.70 3,503.20

Projected change, 2014–2024 Number Percent 9,788.90 6.5 458.1 25.9 439.3 16 348.4 38.1 343.5 10.9

4,624.90 1,492.10 2,581.80 1,109.70 2,124.10 1,159.10 1,332.70 591.3 2,360.60

4,939.10 1,754.10 2,834.80 1,268.70 2,275.20 1,306.50 1,475.10 730.2 2,496.90

314.2 262 252.9 158.9 151.1 147.4 142.4 138.9 136.3

6.8 17.6 9.8 14.3 7.1 12.7 10.7 23.5 5.8

718.4 2,441.30

853.7 2,566.40

135.3 125.1

18.8 5.1

Source: Employment Projections program, U.S. Bureau of Labor Statistics (2015)

2.3

REGIONAL CONSTRUCTION TRENDS

Much of the construction crash in the late 2000’s was due to single family home and other residential building. However, the recession stalled all major construction projects at that time.

During the recession, government construction starts increased as one method to spur the economy. There was pent up demand for commercial construction after the recession, and with low interest rates, the commercial construction industry in the Five-County Region reached and surpassed pre-recession levels consistently since 2011 (see Figure 2.2). General commercial construction has seen some variability, but overall growth in recent years and the number of medical and institutional construction starts has been higher over the past several years than before the recession.

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GBCA| Economic Impact of Commercial Construction in Philadelphia

FIGURE 2.2 - NUMBER OF NEW COMMERCIAL CONSTRUCTION STARTS IN THE FIVE-COUNTY REGION

BY TYPE BY YEAR 900 800 700

Parking Garage

600

Retail

500

Industrial

400

Government

300

Medical & Institutions

200

Commercial

100 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Reed (2003-2013), CMD (2013-2015)

Retail construction in the Philadelphia metro region was also significantly affected by the recession and by the continued shift to e-commerce. While the number of all new retail projects has increased over the past several years, the square footage of retail completions was at a 10year low in 2013 and was even lower in 2014, although rents were seeing a slight increase. By 2015, rents rebounded to the rent levels pre-recession (see Figure 2,3). Several large retail projects in process in the region will play a significant role in the dramatic forecasted increase in the square footage of retail completions and rents over the next five years. These include the Gallery Mall at Market East in Philadelphia, the expansion of the King of Prussia mall, and the new Granite Run mall development.

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GBCA| Economic Impact of Commercial Construction in Philadelphia

1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0

$22 $21 $20 $19 $18

Effective Rent PSF

Total new SF of retail

FIGURE 2.3 – RETAIL COMPLETIONS AND EFFECTIVE RENT PSF 2005-2020 IN THE PHILADELPHIA METRO AREA

$17 $16

Source: REIS (2015)

2.4

PHILADELPHIA TRENDS

Philadelphia has several major new commercial construction projects in the works from those proposed to those under construction. There is a new push towards mixed-use developments, including office and multi-family apartment buildings with ground floor retail, buildings with both a residential and either office or hotel component, and developments that combine labs, offices, and university space. There is a substantial amount of both private and institutional development that has and is occurring in Philadelphia.

UNIVERSITY CITY In Philadelphia, the educational and medical institutions are a significant part of the city’s economy, providing a stable source of quality jobs by attracting high caliber staff and leaders to meet the needs of students and patients. During the recession, and immediately post-recession, much of the construction taking place was led by the city’s educational and medical institutions, mostly in University City. A number of major projects have opened in University City led by the Children’s Hospital of Pennsylvania (CHOP) and Drexel University (Drexel) during the last several years. In addition to those major investments, every major institution in University City including the University of Pennsylvania (UPenn), University City Science Center (UCSC) and University of the Sciences, all have significant place-making projects announced or in progress.

University City’s education and medical institutions are expanding outside of University City to the other side of the Schuylkill River, including developments by CHOP and UPenn. All of the University City anchors have proposed developments following the innovation trend of combined office, lab and research space. These buildings will combine the talents of private companies, entrepreneurs and university partners. Some of the proposed developments also include retail, residential, and green space components with 10 to 20 year build out periods.

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GBCA| Economic Impact of Commercial Construction in Philadelphia

Two of these developments include the partnership between USCS and Wexford Science and Technology for uCity Square and Drexel and Brandywine Realty Trust’s collaboration on Schuylkill Yards. There is over 10 million square feet of development planned in just these two developments, and along with projects by the other University City anchors, these will be a source a significant long-term construction employment.

CENTER CITY Additionally, Center City Philadelphia has seen a boom in new construction with a mix of office, retail, several new hotel projects, and multi-family residential. Similar to projects in University City, there are mixed-use projects in Center City with decade long build out plans including connecting the City’s residents and commerce to the Schuylkill River from the east with the Penn’s Landing redevelopment. Announced projects extend past the traditional core Center City area to the Greater Center City area and even further north along Broad Street up to Ridge Ave.7 Part of the development push to the northern edge of Greater Center City is Temple University’s development push to the south of its campus. Temple has completed several construction projects in the past five years including a 660,000 square foot student residence.

Center City’s office buildings average 55 years old with the most investments in the City’s core office stock, west of Broad Street, made 30 years ago.8 East of South Broad Street is also seeing massive investment in all types of capital stock including significant overhaul in retail with the renovation of the Gallery at Market East and the East Market development.

The increase in construction in Center City is evident most clearly in the number of construction permits approved within the last three years. The change in construction permits approved over time is an indicator of changes in the city’s building stock. Publicly available data, provided by the city’s Office of Licenses and Inspections shows growth within the core Center City area (see Figure 2.4). These permits include all new construction or major renovation permits approved each year.9

7Central

Philadelphia Development Corporation and the Center City District, Center City Reports: Housing Sustaining Momentum, 2015: http://centercityphila.org/docs/CCR15_housing.pdf 8 http://www.bizjournals.com/philadelphia/morning_roundup/2016/01/why-philadelphias-central-business-district-may.html 9 Includes commercial and residential permits

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GBCA| Economic Impact of Commercial Construction in Philadelphia

FIGURE 2.4 – NEW CONSTRUCTION PERMITS APPROVED IN CENTER CITY PHILADELPHIA10

Source: City of Philadelphia Office of Licenses and Inspections (2006-2015)

Much of the new construction comes from an increase in demand for commercial multi-family housing from Philadelphia’s new residents. In addition to increasing the demand for entertainment, retail, and restaurant spaces in Center City, the shift in population to millennials has created a desire to live and work in an urban core. Developers have responded to the current housing demand by planning and completing numerous commercial multi-family projects over the last few years. In 2015, the Five-County Region saw an increase of over $500 million in construction investment for commercial multi-family construction starts, a 140% increase from 2014 (see Figure 2.5).

This refers to the six zip codes surrounding the core Center City area for the purposes of this analysis (19102, 19103, 19106, 19107, 19146, and 19147).

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GBCA| Economic Impact of Commercial Construction in Philadelphia

FIGURE 2.5 – COMMERCIAL MULTI-FAMILY PHILADELPHIA METRO AREA 60

$1,000 $900 $800 $700

40

$600

30

$500 $400

20

$300

Value of Projects ($M)

Number of projects

50

$200

10

$100

0

$0 2013

2014

2015

Source: REIS (2015)

THE NAVY YARD Philadelphia’s Navy Yard has become an engine for business attraction and job growth. Since the closing of the Philadelphia Naval Shipyard in 1996, the Navy Yard has transformed into a location for business headquarters, taking advantage of the industrial architecture, available land, infrastructure investment and culture of technology, innovation across several business sectors, and Keystone Opportunity Zone designation.

The 1,200-acre campus Navy Yard is home to 145 companies and 11,000 employees. Several international companies have made the Navy Yard their headquarters including Urban Outfitters, GlaxoSmithKline, Tasty Baking Company, and most recently, HVAC company Lux Products Corporation. Seven million square feet of commercial space is currently developed at the Navy Yard with a master plan to develop 6.5 million more square feet over the next several years.

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GBCA| Economic Impact of Commercial Construction in Philadelphia

3.0 ECONOMIC IMPACT FROM CONSTRUCTION 3.1

DIRECT CONSTRUCTION ACTIVITY

The building industry is a significant contributor to the economy of the City of Philadelphia, the Five-County Region, and the Commonwealth of Pennsylvania. To measure the quantifiable impacts, we developed a customized model that accounts for the location and construction year of each project. We used Construction Market Data Group LLC (“CMD”)11 data to obtain the value of commercial construction projects for this analysis.

The CMD Construction Starts database provides construction activity statistics on a U.S. county-level basis. The database includes all major property types, both residential and nonresidential.12 The data provides square footage and contract value for all new construction and major renovation activity by year and by type, allowing for a detailed analysis of Philadelphia’s market and its response to economic pressures.

We analyzed the amount of new construction and commercial projects13 over the past three years within (1) the City of Philadelphia and (2) the Philadelphia Five-County Region (Bucks, Chester, Delaware, Montgomery, and Philadelphia counties). Construction costs were inflated to the present so that all dollars could be expressed in 2016 terms.

The amount of new construction and major renovation within the City and Five-County Region is significant (see Table 3.1). There was nearly $7.4 billion in new construction and major renovation expenditures in the Five-County Region from 2013 to 2015, of which nearly $3.9 billion took place in the Philadelphia.

TABLE 3.1 – NEW CONSTRUCTION INVESTMENT 2013-2015 (IN 2016 DOLLARS) Geography

2013

2014

2015

Total

City of Philadelphia ($M)

$1,125

$1,244

$1,484

$3,853

Five-County Region ($M)

$2,168

$2,369

$2,830

$7,367

Source: CMD (2016)

Formerly Reed Construction CMD collects and compiles specific data on construction bids as they are processed. Once a contract is established between a developer and a contractor, that contract provides the basis for square footage, contract value, and construction start time.

13 Includes commercial multi-family construction, but excludes standard residential construction.

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GBCA| Economic Impact of Commercial Construction in Philadelphia

3.2

INPUT-OUTPUT METHODOLOGY

This amount of construction activity produces two kinds of spillover effects. First, locally sourced materials generate increased business activity for local vendors, who in turn ramp up their activities and their own sourcing; this is known as the indirect effect. Second, workers earn wages and in turn spend a portion of their earnings within their local economies; this is known as the induced effect.

The composition and scale of these spillover effects were modeled using IMPLAN, an input/output modeling software. IMPLAN is an industry standard approach to assess the economic and job creation impacts of economic development projects, the creation of new businesses, and public policy changes.

We can therefore model the total economic impact generated by all construction activity that takes place within the City of Philadelphia and the Five-County Region. We can size this impact at the City level, the Five-County Region level, and the Commonwealth level. In other words, direct construction expenditures generate economic activity that ripples out from the project site.

Since the City is completely contained within the Five-County Region, the Five-County Region’s economic impact figures include the City economic impact figures, and the difference between the two represents the amount of economic activity that takes place in the other four counties of the Five-County Region.

3.3

ECONOMIC IMPACT

The economic impact of the construction projects occurs over the length of all of the construction projects. The data used are construction starts, so the economic impact estimated technically occurs post-2015 for those projects that started each year that were not completed in 2015. For simplicity, we notate these impacts from 2013 to 2015, and the model estimates the impacts as if all of the construction investment was spent entirely in these three years and all construction was completed in 2015.

The aggregate construction costs associated with the commercial construction industry in the Five-County Region has generated an estimated $6.5 billion in one-time economic impact for the City. Within the Five-County Region, the construction industry has generated $13.6 billion in one-time economic impact. For the statewide model, only the projects within the Five-County Region were included as direct inputs, however, the spillover economic impact into the rest of the state was modeled. Therefore, within the Commonwealth of Pennsylvania, the construction industry has generated $14.4 billion in one-time economic impact (see Table 3.2).

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TABLE 3.2 – ESTIMATED ECONOMIC IMPACT OF THE COMMERCIAL CONSTRUCTION INDUSTRY 2013-2015 Economic Impact from Construction

City of Philadelphia

Five-County Region

Commonwealth of Pennsylvania

Direct Output ($B)

$3.9

$7.9

$7.9

Indirect and Induced Output ($B)

$2.6

$5.7

$6.5

Total Output ($B)

$6.5

$13.6

$14.4

13,000

27,700

28,900

$2.8

$5.6

$5.8

Employment (Annual FTE ) Total Earnings ($B)

Source: IMPLAN (2013), ESI (2016)

It is important to understand the impact of the commercial building industry as a percentage of the overall local and regional economy. Using the contribution to Gross Domestic Product (GDP) of the Philadelphia economy and the Five-County Region economy in 2013, 2014, and 2015, it was possible to calculate the portion of total GDP represented by the building industry.

The contribution of the commercial building industry to the City and Regional economies can be considered to be the value-added amount generated by the commercial building industry and by the spillover effects associated with its construction work. The “Value Add” from construction in the City over the three-year period was approximately $3.8 billion while in the Five-County Region, the total “Value Add” was approximately $8.1 billion. Dividing the “Value Add” by the GDP for that three-year period provides a sense of the percentage of the overall local and regional economies represented by the impact of the commercial building industry. For the City, this proportion is 1.6 percent, for the Five-County Region, this proportion is about 1.2 percent (see Table 3.3).

TABLE 3.3 – IMPACT OF THE COMMERCIAL BUILDING INDUSTRY AS A PERCENTAGE OF OVERALL LOCAL AND REGIONAL ECONOMY FROM 2013 TO 2015 ($B) Five-County Category City of Philadelphia Region Direct Construction $3.9 $7.9 Total Impact from Construction

$6.5

$13.6

Value Add from Construction

$3.8

$8.1

GDP for Geography (3 year total)

$241

$697

Value Add / GDP

1.6%

1.2%

Source: Econsult Solutions, Inc. (2016), CMD (2013), IMPLAN (2013)

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GBCA| Economic Impact of Commercial Construction in Philadelphia

JOBS IMPACT IMPLAN estimates jobs as job-years, accounting for the length of a construction project. The CMD data are by construction project starts in each year. We do not have the length of construction projects and IMPLAN assumes all construction projects estimated start and end between 2013 and 2015. Using this assumption, it is estimated that each year, 27,700 direct, indirect and induced jobs are supported in the Five-County Region. Over all three years, they will earn an estimated $5.6 billion in wages and benefits.

The data used for this analysis does not include construction projects that started before 2013 and that were still in process in 2013 and later. Therefore, the 27,700 total supported jobs are an underestimate of jobs supported by all commercial construction projects from 2013 to 2015..

The jobs estimated from IMPLAN include both direct jobs that work on the construction projects, and indirect/induced supported jobs. The latter are the local businesses from which the developers purchase materials or services or local businesses where the construction employees spend their wages.

Large-scale construction projects support workers in several other industries. The forecasts of increased commercial construction projects will be very beneficial to several other industries in the region. Construction jobs account for 63% of all of the supported jobs (see Figure 3.1).

Healthcare, professional services, retail, and dining establishments are also beneficiaries of the commercial construction industry.

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FIGURE 3.1 – DISTRIBUTION OF DIRECT, INDIRECT, AND INDUCED JOBS IN THE FIVE-COUNTY REGION DUE TO COMMERCIAL CONSTRUCTION ACTIVITY FROM 2013 TO 2015

Direct Construction Jobs, 63%

Health Care and Social Assistance, 6%

All Other Industries, 11%

Finance and Insurance, 3%

Retail Trade, 6% Accommodation and Food Services, 3%

Indirect and Induced Jobs

Professional, Scientific, and Technical Services, 5%

Administrative and Support, Waste Management/ Remediation Services, 3%

Source: Econsult Solutions, Inc. (2016), CMD (2013), IMPLAN (2013)

3.4

FISCAL IMPACT

The fiscal impacts generated by these investments are substantial. The building industry has generated City and Commonwealth taxes both directly through its own capital activities and indirectly via spending by vendors and employees. From 2013 to 2015, it is estimated that the commercial construction industry generated $107 million in tax revenues to the City and approximately $331 million in tax revenues to the Commonwealth in the form of income, sales, and businesses taxes (see Table 3.4).

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GBCA| Economic Impact of Commercial Construction in Philadelphia

TABLE 3.4 – ESTIMATED FISCAL IMPACT OF THE COMMERCIAL CONSTRUCTION INDUSTRY 2013-2015 ($M) City of Philadelphia

Commonwealth of Pennsylvania

Wage/Income

$75

$171

Sales

$12

$129

Business

$19

$31

$107

$331

Tax Type

Total

Source: IMPLAN (2013), Federal Reserve Bank of St. Louis (2011), Philadelphia Department of Revenue (2012), Commonwealth of Pennsylvania (2015), ESI (2016)

It is important to put these total tax revenues into perspective within the City economy.

Approximately 1.7 percent of the City’s income tax revenues, 1.6 percent of the City’s sales tax revenues, and 1.6 percent of the City’s business tax revenue are supported by the commercial construction industry each year (see Table 3.5).

TABLE 3.5 – ANNUAL FISCAL IMPACT AS A PROPORTION OF THE CITY OF PHILADELPHIA’S TAX BASE ($M) City of Philadelphia Tax Base

Annual Fiscal Impact

% of Tax Base

Wage

$1,509

$25

1.7%

Sales

$250

$4

1.6%

Business

$388

$6

1.6%

Tax Type

Source: IMPLAN (2013), Federal Reserve Bank of St. Louis (2011), Philadelphia Department of Revenue (2012), ESI (2016)

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GBCA| Economic Impact of Commercial Construction in Philadelphia

4.0 CONCLUSION Commercial capital construction can nurture a region. The Philadelphia region is undergoing a significant wave of economic development that is varied and sustaining, with sufficient capacity as GBCA’s members continue to renovate and renew the capital stock. The current investment is not in one type of capital infrastructure, it is across all uses: office, retail, hotels, institutional, housing, and recreation. This healthy diversity in capital construction is increasing the region’s competitiveness for business and resident attraction.

The plans for development in the region are not capped at the next few years, there are several decade long development plans in the works that will be transformative for Philadelphia and the region. These developments are meeting the demand for sustainability in construction, an integrated user experience, and ease of transition between work, recreation, and home life that newly designed buildings and outdoor spaces will meet. As GBCA’s members bring new buildings online, older building stock will need to be renovated to remain competitive, creating a cycle of renewal for the region’s capital stock that has not occurred within the past 30 years.

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GBCA| Economic Impact of Commercial Construction in Philadelphia

APPENDIX A – INPUT-OUTPUT METHODOLOGY A.1 OVERVIEW Economic impact estimates are generated by utilizing input-output models to translate an initial amount of direct economic activity into the total amount of economic activity that it supports, which includes multiple waves of spillover impacts generated by spending on goods and services and by spending of labor income by employees. This section summarizes the methodologies and tools used to construct, use, and interpret the input-output models needed to estimate this project’s economic impact.

A.2 INPUT-OUTPUT MODEL THEORY In an inter-connected economy, every dollar spent generates two spillover impacts: 

First, some amount of the proportion of that expenditure that goes to the purchase of goods and services gets circulated back into an economy when those goods and services are purchased from local vendors. This represents what is called the “indirect effect,” and reflects the fact that local purchases of goods and services support local vendors, who in turn require additional purchasing with their own set of vendors.

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Second, some amount of the proportion of that expenditure that goes to labor income gets circulated back into an economy when those employees spend some of their earnings on various goods and services. This represents what is called the “induced effect,” and reflects the fact that some of those goods and services will be purchased from local vendors, further stimulating a local economy.

The role of input-output models is to determine the linkages across industries in order to model out the magnitude and composition of spillover impact to all industries of a dollar spent in any one industry. Thus, the total economic impact is the sum of its own direct economic footprint plus the indirect and induced effects generated by that direct footprint.

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INPUT-OUTPUT MODEL MECHANICS

To model the impacts resulting from the direct expenditures Econsult Solutions, Inc. developed a customized economic impact model using the IMPLAN input/output modeling system.

IMPLAN represents an industry standard approach to assess the economic and job creation impacts of economic development projects, the creation of new businesses, and public policy changes.

Econsult Solutions | 1435 Walnut Street, Ste. 300 | Philadelphia, PA 19102 | 215.717.2777 | econsultsolutions.com

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GBCA| Economic Impact of Commercial Construction in Philadelphia

IMPLAN is one of several popular choices for regional input-output modeling. Each system has its own nuances in establishing proper location coefficients. IMPLAN uses a location quotient to determine its regional purchase coefficient (RPC). This represents the proportion of demand for a good that is filled locally; this assessment helps determine the multiplier for the localized region. Additionally, IMPLAN also accounts for inter-institutional transfers (e.g. firms to households, households to the government) through its Social Account Matrix (SAM) multipliers.

IMPLAN takes the multipliers and divides them into 440 industry categories in accordance to the North American Industrial Classification System (NAICS) codes.

These economic impacts in turn produce one-time or ongoing increases in various tax bases, which yield temporary or permanent increases in various tax revenues. To estimate these increases, Econsult Solutions, Inc. created a fiscal impact model to translate total economic impacts into their commensurate tax revenue gains.

A.4 EMPLOYMENT AND WAGES SUPPORTED IMPLAN estimates the direct jobs employed by the project or activity being modeled. These estimated direct jobs will be displayed in the report unless the number of jobs is known beforehand by the project’s owner, and if provided, will be noted in the body of the report. The project/activity expenditures also support induced and indirect jobs. These are jobs not directly employed by the project, but instead are employees who work for the project’s vendors and employees who work at businesses frequented by those employees directly employed by the project. We report the total jobs supported by the project, therefore all direct, indirect, and induced jobs. These jobs are a mix of full-time and part-time jobs.

IMPLAN generates job estimates based on the term job-years, or how many jobs will be supported each year. For instance, if a construction project takes two years, and IMPLAN estimates there are 100 employees, or more correctly “job-years” supported, over two years, that represents 50 jobs each year. The 50 jobs represent the annualized number of jobs supported by the construction project. The job can be the same each year such as the coffee barista serving the directly employed construction workers or different if in the first year of the project a welder is needed and in the second year of the project an electrician is required.

The total income is for all direct, indirect and induced jobs. It includes proprietor income, wages, and all benefits. Since many projects/events require the employment sourced from multiple industries, the average wages paid will be different per industry. Therefore, it is not correct to divide the total labor income and divide it by the total job-years to derive an average employee compensation estimate.

Econsult Solutions | 1435 Walnut Street, Ste. 300 | Philadelphia, PA 19102 | 215.717.2777 | econsultsolutions.com

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GBCA| Economic Impact of Commercial Construction in Philadelphia

APPENDIX B - ABOUT ECONSULT SOLUTIONS, INC. This report was produced by Econsult Solutions, Inc. (“ESI�). ESI is a Philadelphia-based economic consulting firm that provides businesses and public policy makers with economic consulting services in urban economics, real estate economics, transportation, public infrastructure, development, public policy and finance, community and neighborhood development and planning, as well as expert witness services for litigation support. Its principals are nationally recognized experts in urban development, real estate, government and public policy, planning, transportation, non-profit management, business strategy and administration, as well as litigation and commercial damages. Staff members have outstanding professional and academic credentials, including active positions at the collegiate level, vast experience at the highest levels of the public policy process and extensive consulting experience.

Econsult Solutions | 1435 Walnut Street, Ste. 300 | Philadelphia, PA 19102 | 215.717.2777 | econsultsolutions.com

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