The Philadelphia metro area’s stabilized Class A vacancy rate stands at 3.5% – 120 basis points higher than the 2.3% 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 160 basis points compared to June 2012, at 4%. Vacancy in Southern New Jersey, at 3.5%, rose by 20 basis points from 3.3% at June 2013. Vacancy in Center City is up 90 basis points to 2.5%.
The substate areas of Southern New Jersey and Suburban Pennsylvania experienced healthy rent conditions, showing overall rent growth in the suburbs of 1.9% over the year with average effective rents at $1,442. However, rents in Center City showed a lackluster performance, with a decrease of .6% since last year at this time. Rent growth in Suburban Pennsylvania was 1.5% since mid-year 2012, while Southern New Jersey rents grew by 2.8% over the same period. Effective rents across the entire Philadelphia metro area grew by 1.2% over the past year.
For the metro as a whole, average effective rental rates are $1,642 ($1.63 per SF). Center City effective rents average $2,180 ($2.21 per SF) vs. $1,442 ($1.42 per SF) in the suburbs.
Limited supply in recent quarters has 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, Delta projects 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 their 36-month forecast period. There are currently about 2,500 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 1.5% when compared to rents at mid-year 2012. Stabilized vacancy is currently 4% compared to last year’s level at 2.4%. Concessions have dropped over the last year, from 1.8% of asking rent at mid-year 2012 to 1.3% in the current quarter. Effective rents in Montgomery County are down 2.3% over the year while Chester & Delaware Counties experienced a growth of 3.1%. Bucks County experienced a rent growth over the year of 4%. Stabilized vacancy is currently the highest in Montgomery County at 5%. Stabilized vacancy in Bucks County is 3% and Chester and Delaware Counties have a vacancy rate of 3.6%.
