Jared Jacobs, Cushman & Wakefield's research manager, Philadelphia, PA

PHILADELPHIA, PA—The vacancy rate for the Philadelphia MSA apartment market increased to 3.9 percent in the fourth quarter of 2017, due in large part to the addition of 4,040 new units in 2017, according to Cushman & Wakefield. The commercial real estate services firm's Philadelphia research team released its fourth-quarter 2017 Multifamily Marketbeat report for the region, which forecasts strong construction activity and positive absorption to continue throughout 2018.

“The more-than-4,000 new units delivered in 2017 is the highest annual total on record in the Philadelphia MSA,” says Jared Jacobs, Cushman & Wakefield's research manager. “However, even with the increase in new product, net absorption in 2017 was positive, with 3,516 units absorbed last year.”

Average asking rental rates increased by four percent year-over-year, to $1,290 per unit, vs. $1,241 at year-end 2016. Effective rents for the fourth quarter also increased from $1,220 in 2016 to $1,246 per unit, a 2.1-percent increase year-over-year.

In Center City Philadelphia, the vacancy rate declined to 7.6 percent in the fourth quarter of 2017, down from 9.4 percent in the second quarter of 2017 and nearly three points down from 10.3 percent in the fourth quarter of 2016.

“Center City is coming off a record year in total construction completions in the downtown market, with 1,624 new units delivered in 2016, and absorption was strong in 2017,” Jacobs says. “1,257 units were absorbed this year, the highest in the market's history, which contributed to the nearly 300 basis point decline in vacancy year-over-year.”

Center City's asking rental rates increased to $2,185 per unit, a 1.4-percent increase from the fourth quarter of 2016 when the asking rate averaged $2,155 per unit. Despite the increase in asking rents, effective rents declined by 4.7 percent year-over-year to $2,018 per unit, down from $2,118 per unit a year ago.

Class A product also saw a 0.2-percent decline in asking rental rates in 2017, from $2,446 per unit year-end 2016 to $2,441 year-end 2017.

“While we expect construction activity to remain strong throughout 2018, look for a considerable dropoff by 2019 and 2020.” says Jacobs.

Despite the large amount of new construction projected to come online in 2018, vacancy is forecasted to increase by only 20 basis points and absorption is expected to remain positive with 3,143 units to absorb by year-end 2018. Both asking and effective rental rates are forecast to increase in the Philadelphia MSA by 3.5 percent and 2.6 percent, respectively.

Instant Insights /

Cushman & Wakefield: 2017's Record-Setting MF Performance

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