After increasing 25% between 2002 and 2003, to date this year the median sale price per unit throughout the MSA has risen 2% to $54,700. A majority of the properties that changed hands this year have been lower-priced class B and class C assets in the suburban markets, Algatt says adding that several high-dollar, class A properties have also been sold. He puts year-to-date dollar volume at $425 million, "almost equal to that for all of 2003," and adds, "transaction volume is on course for a strong finish in 2004."

New apartment construction has remained level since 2000, with about 1,500 units completed each year throughout the MSA in each of the past four years. An exception, however, is in Center City, which continues to experience positive absorption. "Over the past 10 years," Algatt says, "at least 75 downtown office and industrial buildings have been converted to residential use, with over 3,000 for-sale and rental units delivered in the previous three years alone."

While the average asking rental rate for the entire MSA is expected to increase 2.7% to $902 a month by the end of this year, the average in center city will reach $1,402 per month, Marcus & Millichap predicts. Restrained construction has kept vacancy tight and allowed rents to climb. "While the MSA has typically been a supply-constrained market, the [Philadelphia] Navy Yard and other waterfront developments, as well as projects under way by developers like O'Neill Properties, could potentially push vacancies higher unless marked improvement in the employment market is realized," Algatt cautions. Among O'Neill's plans is development of a 12.4-acre parcel of former quarry land just 10 minutes from Center City along the Main Line.