VACANCY RATE RISES AS COMPETITION RAMPS UP; RENTS BENEFIT FROM DEMAND FOR QUALITY URBAN APARTMENTS

The Philadelphia area apartment market remains competitive as development activity, particularly in Center City, maintains a robust pace. Strong Class A absorption is expected as recent national and regional demographic and lifestyle changes spur rental demand and favor creative apartment living accommodations.

The Philadelphia metro area stabilized Class A vacancy rate rose 90 basis points to 5.5% at first quarter 2015, compared to 4.6% at this time last year. A high volume of deliveries, especially in Center City, was the main contributor to the higher metro-wide vacancy rate.

  • Suburban Pennsylvania vacancy increased 130 basis points to 5.8% from 4.5% at March 2014.
  • Vacancy went up 230 basis points in the City of Philadelphia to 6.3% from 4.0% from one year ago.
  • Southern New Jersey vacancy rates declined 160 basis points to 3.9% at first quarter 2015 from 5.5% last year.

Despite a higher metro-wide vacancy rate, each submarket experienced an annual increase in effective rents with record-breaking rent growth in the City of Philadelphia. For the 12 months ending March 2015, here are the effective rent changes:

  • Center City up 5.3%.
  • Suburban Pennsylvania up 3.4%.
  • Southern New Jersey up 1.7%.

Metro-wide, effective rents rose 3.6% from last year. Average effective rents at first quarter 2015 are $1,669 or $1.67 per SF. Effective rents average $2,139 ($2.24 per SF) for high-rise product in Center City vs. $1,452 ($1.43 per SF) for low-rise product in the suburbs.

CITY OF Philadelphia

The City’s apartment market performance continues to be affected by the delivery of several new projects. Vacancy increased as more units delivered and began lease-up. The growing demand for these new Class A apartments, however, remains robust. Millennials who choose to stay near Philadelphia’s institutions of higher learning are driving demand for urban apartment living and quality common area amenities. This trend has bolstered rent growth in the city with a record-setting increase of 5.3% during the past year, partially offsetting a 6.6% decline in the prior 12-month period.

Despite growing demand, a more competitive landscape is expected throughout 2015 as more downtown projects prepare for occupancy. Currently, there are 4,094 units under construction or planned that for delivery in the next 36 months, after accounting for attrition. Philadelphia’s supply/demand relationship indicates that vacancy will edge up slightly and rent growth is likely to fall back to near its five-year average over the next 24 months. Over time, however, we expect Center City to remain a healthy market.

SUBURBAN Pennsylvania

Effective rents in Suburban Pennsylvania are up by 3.4% over the year. Stabilized vacancy, however, increased to 5.8% from last year’s rate of 4.5%. Rents in Bucks County and Montgomery County went up 0.5% and 3.3%, respectively, in the 12 months ending March 2015. Chester and Delaware counties continue to experience the strongest rent gains in Suburban Pennsylvania with an increase of 4.8% over the year. However, stabilized vacancy in Chester and Delaware counties was also highest as of March 2015 at 6.6%. Stabilized vacancy at first quarter 2015 is 3.2% in Bucks County and 6.2% in Montgomery County, down from 3.9% and 6.6% one year ago, respectively.

SOUTHERN New Jersey

Effective rents in Camden County and Burlington County increased over the year, each up 1.7% at first quarter 2015. Meanwhile, Mercer County experienced rent gains of 6.2% from last March. Overall, Southern New Jersey has a stabilized vacancy rate of 3.9% at March 2015, down from 5.5% last year. Mercer County saw an increase in stabilized vacancy rate to 5.9%, from 2.7% last year. Stabilized vacancy at March 2015 is 5.9% in Camden County and 2.5% in Burlington County, down from 7.4% and 3.9% over the year, respectively.