Center City Continues as 'Hot Spot' of Residential Growth

PHILADELPHIA-Although 3,900 residential units are slated to come online in Center City by 2008, joining approximately 6,400 which were delivered since 1998, "demand appears to be keeping pace with supply," according to Jeffrey Algatt, regional manager of the local office of Marcus & Millichap. The city's 10-year tax abatements on both new residential construction and conversions have boosted housing stock here, but "a unique demographic of young professionals and empty nesters has bolstered demand for urban living," he adds.

The advent of slot machine parlors with a portion of revenues designed to reduce the "long-despised wage tax…may ultimately help to stem the out-migration of residents and businesses," Algatt also suggests. The parlors could open by 2007.

Condos in the Rittenhouse Square and Society Hill neighborhoods are selling for as much as $1,000 per sf, and rising rental rates are making Center City "the most expensive place to live in the region," Algatt says. According to this company's mid-year data, the average asking rent in the city's central core is expected to reach $1,448 a month by year's end, which is about 64% higher than the average asking rent for the rest of the region. Rates throughout the region, however, are also rising. Marcus & Millichap expects that overall rate to climb 2.8% to $925 a month by the end of this year.

Investor interest in the region is robust, and sales of small complexes are especially in demand, Algatt says. In fact, all but a few of this year's multifamily sales transactions have involved properties containing fewer than 100 units. "Condominium converters" interest in properties of this size has helped push the overall median price per unit to $56,114 year-to-date, which is an increase from $52,317 a unit at the end of 2004. A six-unit property in Center City recently traded for $217,000 a unit, and properties on Spruce Street are going for $122,400 a unit, he says.