Philadelphia Metro Area Experiences Mild Positive Rent Growth Despite Rising Vacancy Rates
The Philadelphia metro area’s stabilized Class A vacancy rate stands at 5.0% — 220 basis points higher than the 2.8% rate registered at this time last year. Vacancy increased over the year in the suburbs of Pennsylvania, New Jersey, and Center City. Suburban Pennsylvania vacancy is up 200 basis points compared with September 2012, at 4.8%. Vacancy in Southern New Jersey, at 4.7%, rose by 60 basis points from 4.1% at September 2013. Vacancy in Center City is up 360 basis points to 5.5%.
The substate areas of Southern New Jersey and Suburban Pennsylvania experienced healthy rent conditions, showing overall rent growth in the suburbs of 1.8% over the year with average effective rents at $1,433. The rents in Center City showed a strong performance as well, with an increase of 4.7% since last year at this time. Rent growth in Suburban Pennsylvania was 2.3% since mid-year 2012, while Southern New Jersey rents grew by 0.7% over the same period. Effective rents across the entire Philadelphia metro area grew by 2.6% over the past year.
For the metro as a whole, average effective rental rates are $1,637 ($1.63 per SF). Center City effective rents average $2,186 ($2.22 per SF) vs. $1,433 ($1.41 per SF) in the suburbs.
Limited supply in recent quarters has led to healthy rent growth and low vacancy in Center City Philadelphia. Despite this healthy performance, the number of units under construction is significant and, as a result, we project that the 36-month supply will slightly exceed the number of units that will be absorbed in the Center City area by the end of our 36-month forecast period. This can already be seen by the rising vacancy rates in the last quarter. There are currently about 2,000 units under construction or planned that may deliver in the next 36 months in Center City Philadelphia. Philadelphia’s supply/demand relationship indicates that vacancy will continue to edge up slightly and rent growth is likely to stay negative over the next 24 months. This trend will be temporary, however, and we expect Center City to remain a healthy market,
Pennsylvania Suburbs
Effective rents in this area are up by 2.3% when compared with rents at third quarter 2012. Stabilized vacancy is currently 4.8% compared with last year’s level of 2.8%. Concessions have risen slightly over the last year, from 1.3% of asking rent at third quarter 2012 to 2.3% in the current quarter. Effective rents in Montgomery County are down 2.2% over the year while Chester and Delaware counties experienced a growth of 5.6%. Bucks County experienced a rent growth over the year of 1.4%. Stabilized vacancy is currently the highest in Montgomery County at 5.1%. Stabilized vacancy in Bucks County is 4.5%, and Chester and Delaware counties have a vacancy rate of 4.7% at September 2013.
