Philadelphia Apartment Up Despite Sluggish Economy
- Jul 02, 2014
With the large number of graduates from local colleges and universities expected to boost employment by fall, Philadelphia will continue last year’s positive development in both payrolls and apartment operations.
According to Marcus & Millichap, in 2014 employers in the city and metro area are expected to create 44,700 new jobs—as compared to 38,000 positions in 2013—to expand payrolls 1.6 percent. This expansion of the labor force will trigger an increase in rental housing demand, part of which will be covered by the supply growth in the Center City area, where vacancy could rise over the following months as new buildings lease up. Last year the initial stage of development added approximately 1,400 new units to the city’s housing inventory, and several more hundred units are on the pipeline for 2014. Earlier this year the Philadelphia City Council unveiled a new housing plan called “1,500 New Affordable Housing Units Initiative” that aims to create 1,000 new affordable rental units and 500 new residential units in gentrifying neighborhoods throughout the city in an effort to protect low-income, long-term residents.
Marcus & Millichap’s report points at the probability of a new construction wave fueled by strong financing options. While ground-up construction is expected to become more prevalent, adaptive reuse projects are slowly picking up especially in Philadelphia’s historic area. One example is the recently announced redevelopment of the old Avenue of the Arts Building located at 1338-1348 Chestnut Street in Center City. The historic former office structure will be reconverted into a luxury residential building with 220 rental apartments by a joint venture between MRP Residential and Principal Real Estate Investors.
According to Marcus & Millichap, 2,500 units are expected to come online in 2014, down from 3,400 apartments delivered in 2013. Meanwhile, vacancy is expected to drop 30 basis points this year—a 10-point decline from 2013—to 4.7 percent behind net absorption of more than 3,400 units. In response to lower vacancy rates, asking rents are expected to climb 3.3 percent in average this year, reaching $1,165 per month.
As the economy slowly improves and employers attract new residents to the metro area, developers try to follow the same positive trends on the retail market. New infill properties are expected to be built in emerging areas that lack retail and grocery-anchored facilities. However, because of the high cost of development, many of these projects are set to come online almost completely pre-leased.
In terms of new construction, Marcus & Millichap’s recent retail market report estimates that developers will complete 600,000 square feet, 177,000 square feet fewer than the amount of retail space completed in 2013. The slow construction pace combined with strong demand will push vacancy down 40 basis points to 6.4 percent in 2014. Multi-tenant asking rents on the other hand are expected to climb 3.7 percent to $16.55 per square foot this year.