The Philadelphia metro area’s stabilized Class A vacancy rate stands at 5.8% — 200 basis points higher than the 3.8% rate registered at this time last year. Vacancy increased over the year in Suburban Pennsylvania, Southern New Jersey, and Philadelphia City. Suburban Pennsylvania vacancy is up 190 basis points compared with December 2012, at 5.6%. Vacancy in Southern New Jersey, at 6.5%, rose by 230 basis points from 4.2% at December 2012. Vacancy in Center City is up 220 basis points to 5.5% in the same time period.
The substate areas of Southern New Jersey and Suburban Pennsylvania experienced healthy rent conditions, showing overall rent growth in the suburbs of 2.4% over the year with average effective rents at $1,433. The rents in Philadelphia City did not do as well, with a decrease of 5.7% since last year at this time. Rent growth in Southern New Jersey was the best as they grew by 7.0% over the same period. Effective rents across the entire Philadelphia metro area grew by 0.2% over the past year.
For the metro as a whole, average effective rental rates are $1,601 ($1.58 per SF). Center City effective rents average $2,042 ($2.07 per SF) vs. $1,433 ($1.40 per SF) in the suburbs.
Philadelphia City
An increase in supply over recent quarters has led to rent declines and rising vacancy in Philadelphia City. The number of units under construction has risen slightly, 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. This can already be seen by the rising vacancy rates in the last quarter. There are currently about 3,513 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.
Suburban Pennsylvania
Effective rents in Suburban Pennsylvania are up by 0.3% when compared with rents at the end of 2012. Stabilized vacancy is currently 5.6% compared with last year’s level of 3.7%. Concessions have risen slightly over the last year, from 1.1% of asking rent at year-end 2012 to 1.9% in the current quarter. Effective rents in Montgomery County are down 1.0% over the year, while Chester and Delaware counties experienced a growth of 0.4%. Bucks County experienced a rent growth over the year of 2.4%. Stabilized vacancy is currently the highest in Montgomery County at 7.4%. Stabilized vacancy in Bucks County is 5.4%, and Chester and Delaware counties have a vacancy rate of 4.3% at year-end 2013.
Southern New Jersey
Mercer County currently has the lowest stabilized vacancy rate in Southern New Jersey, at 2.7%, up from 1.8% at year-end 2012. Camden County has a stabilized rate of 8.2%, and Burlington County has a rate of 5.2%. Burlington County experienced an increase in vacancy of 160 basis points from one year ago, while Camden County experienced an increase in the stabilized vacancy rate of 330 basis points. Excluding Mercer County, the vacancy rate for stabilized properties in Southern New Jersey rose by 280 basis points, from 4.2% at year-end 2012 to 7.0% currently.
