Philadelphia Metro Area Experiences Slight Rent Increase and a Drop in Vacancy

The Philadelphia metro area’s stabilized Class A vacancy rate* fell 2.1% to 2.9% in the third quarter of 2014, compared to 5.0% at this time last year, as vacancy decreased over the year in all metro area submarkets. Suburban Pennsylvania vacancy is down from 4.8% compared with September 2013, at 2.4%. In Southern New Jersey, vacancy is at 2.9% – 1.8% from 4.7% a year ago. Vacancy in Center City also declined 1.9% to 3.6% in the same time period.

The sub-state areas of Southern New Jersey and Suburban Pennsylvania experienced similar rent conditions with overall rent growth of 2.3% over the year with average effective rents** at $1,468 per month. Rents in Center City remained relatively flat with a slight decrease of 0.1% since September 2013. Rent growth in Southern New Jersey was strongest as it grew by 2.9% over the same period. Effective rents across the entire Philadelphia metro area increased by 1.5% over the past year.

Metro-wide, average effective rental rates are $1,693 ($1.70 per SF). Center City effective rents average $2,177 ($2.28 per SF) for high-rise product vs. $1,468 ($1.44 per SF) for low-rise product in the suburbs.

CITY OF PHILADELPHIA

An increase in supply over recent quarters has led to lackluster rent growth and rising vacancy in Center City. Despite some improvements this quarter, the number of units under construction continues to increase, and as a result, we project that the 36-month supply will slightly exceed the number of units that will be absorbed*** in Center City by the end of our 36-month forecast period. There are currently about 4,914 units under construction or planned that may deliver in the next 36 months in Center City. Philadelphia’s supply/demand relationship indicates that vacancy will continue to edge up slightly and rent growth is likely to stay flat over the next 24 months. However, this trend will be temporary and we expect Center City to remain a healthy market.

SUBURBAN PENNSYLVANIA

Effective rents in Suburban Pennsylvania are up by 2.0% when compared with rents at September 2013. Stabilized vacancy is currently 2.4% compared with last year’s level of 4.8%. Concessions have dropped slightly over the last year, from 2.3% of asking rent at September 2013 to 0.9% in the current quarter. Effective rents in Bucks County are down 0.3% over the year, while Montgomery County experienced positive growth of 2.3%. Chester and Delaware counties experienced the strongest rent gains in Suburban Pennsylvania with an increase of 2.9% over the year. Stabilized vacancy is currently also the lowest in Delaware and Chester Counties at 0.9%. Stabilized vacancy in Bucks County is 1.6%, and 4.9% in Montgomery County at September 2014.

SOUTHERN NEW JERSEY

Southern New Jersey has a stabilized vacancy rate of 2.9% at September 2014, down from 4.7% over the year. Mercer County has the lowest stabilized vacancy rate among Southern New Jersey submarkets, at 0.9%, from 2.4% last year at this time. Camden County has a stabilized rate of 3.0%, and Burlington County has a rate of 2.8%, down from 5.0% and 4.5% respectively over the year. All of the submarkets in Southern New Jersey experienced rent growth with effective rents increasing 2.9% over the year. Burlington County led this increase with a 4.7% from third quarter 2013 to third quarter 2014, compared to Camden County’s rent growth of 0.6% and Mercer County’s rent gain of 2.8% over the same period.

*The term stabilized vacancy rate in real estate refers to the rate of available units in stabilized properties. A property is considered stabilized when it reaches 95% capacity. The property is still considered in the pool of stabilized properties even if it drops below 95% capacity afterwards.

**Effective rent denotes the total cost of rent after concessions (perks such as a month free of rent, etc.) have been made to the renter by the landlord

***The rate at which available homes are sold in a specific real estate market during a given time period.