Vacancy Remains Low But Inches Up, Causing Slight Decline in Rent

  • The Philadelphia metro area’s stabilized Class A (luxury) vacancy rate stands at 3.8% – 190 basis points higher than the 1.9% 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 130 basis points compared to December 2011, at 3.7%.
  • Vacancy in Southern New Jersey, at 4.2%, rose by 30 basis points from 3.9% at year-end 2011. Vacancy in Center City is up 190 basis points to 3.7%.
  • The substate areas of Southern New Jersey and Suburban Pennsylvania experienced deteriorated rent conditions, showing overall rent change in the suburbs of negative 1.1% over the year with average effective rents at $1,389.
  • Rents in Center City performed slightly better, with an increase of 0.2% since last year at this time.
  • Rent change in Suburban Pennsylvania was negative 1.3% since year-end 2011, and Southern New Jersey decreased by 0.6% over the same period.
  • Effective rents across the entire Philadelphia metro are at negative 0.7% over the past year.
  • For the metro as a whole: Average effective rental rates are $1,593. Center City effective rents average $2,146 ($2.19 per SF) vs. $1,389 ($1.38 per SF) in the suburbs.
  • Limited job growth and a limited supply in recent quarters have led to healthy rent growth and low vacancy in the 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. There are currently about 2,700 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 moderate over the next 24 months.

Pennsylvania Suburbs:

  • Effective rents in this area are down by 1.3% when compared to rents in the fourth quarter of 2011.
  • Stabilized vacancy is currently 3.7% compared to last year’s level at 2.4%.
  • Concessions have dropped slightly over the last year, from 1.3% of asking rent in the fourth quarter of 2011 to 1.1% in the current quarter.
  • Effective rents in Montgomery County are up 1.1% over the year while Chester and Delaware Counties experienced a decrease of 1.2%.
  • Vacancy is currently the highest in Montgomery County at 4.4%. Vacancy is currently the lowest in Bucks County at 2.9% and Chester and Delaware Counties have a vacancy rate of just 1.5% at the end of 2012.