"Investors view the Philadelphia MSA as a safe investment haven due to the area's diversified business base and long tradition of solid fundamentals," says Jeffrey R. Algatt, M&M's regional manager here.

In-migration will pick up steam, he says, "creating additional renter demand and supporting apartment prices." Most of the activity, he predicts, will occur in the suburbs, because of increased employment opportunities and more modest living costs in those areas. Yet, much of the increase in renter demand will benefit the luxury market, given the relatively high wages in the growing life sciences industries.

Developers will deliver 1,900 new units throughout the MSA this year, which is nearly a 20% increase over the 1,590 units that came to market last year. Overall multifamily vacancy is expected to inch up 60 basis points to 4.2% this year, due to an excess of supply. Vacancy in the northern suburbs, however, is less than 3.5%, Algatt says. And, despite new construction, vacancy in Bucks County and the Torresdale/Bensalem submarkets is also less than 3.5%.

The area's average asking rent will increase 3.4% to $908 in 2004, which marks the largest increase since 2001. While this is substantially above the relatively flat rental trends throughout the country, according to the M&M report, concessions of 4% will put average effective rents in this region at $866 a month.

North Delaware County and the Moreland/Abington/Upper Dublin submarkets have a large inventory of luxury apartments. Owners of those properties are competing for tenants in Center City properties where, at $1,350 a month, average rental rates are the highest. As the trend toward urban living accelerates, however, M&M predicts that Center City properties will appreciate and be able to command higher rents.

The number of multifamily sales transactions in the Philadelphia region hit a record in 2003. The median price per unit increased by more than 24% to $53,869 in 2003. M&M detects continued upward pricing in the beginning of this year and expects the median price to rise to $58,000 by year-end.