Thursday, May 11, 2017

Supply, Affordability Issues Pressuring Apt. Rent Growth in Downtown Philadelphia

The stark contrast in recent apartment rent growth between the city and suburbs is notable. A majority of the new supply has been built in and around Philly’s CBD, and rents have been flat or even retreating the last few quarters in the downtown Center City and Art Museum/Northern Liberties submarkets. Even buzzworthy apartment-renting hot spots such as University City have seen slow to no rent growth, and new units are still coming.

Meanwhile, the major suburban apartment submarkets such as Conshohocken, Cherry Hill/Haddonfield and Main Line have seen the party continue with rent gains averaging closer to 4% or 5% year over year.

A lot of this is attributable to new supply pressure, but affordability is also a factor. There are only so many renters who can or will pony up for a $2,000-per month, one-bedroom unit in Center City. Similar amenities in nearby buildings that have access to public transportation and a rent bill that’s several hundred dollars less per month can be pretty compelling.

Sky Isn’t Falling on Center City Apt. Leasing Managers Just Yet

While the slowdown in rent growth is obvious, apartment assets in downtown Philly still have a lot going for them-and the biggest selling point is the city itself. I can’t tell you if an infiniti pool in Newtown Square is better than an infiniti pool in Rittenhouse Square, but I know which one is a few steps away from premier shopping, restaurants and more nightlife than just about every suburb in Philadelphia combined can offer.

This isn’t a value judgement on one or the other, by the way. Just an observation that you can’t replicate the city as an amenity, even in the most walkable town-center environment. Oh, and having the Comcast Technology Center and it’s thousands of well-paid employees commuting to your neck of the wood in less than a year is also pretty good consolation.

Compelling Multifamily Stories Emerging Outside Pennsylvania Portion of This Metro

There are two fascinating reclamation projects happening within the boundaries of the Philadelphia metro area, both are in nearby Delaware.

The city of Camden’s revival has received national attention because of all the tax incentives the state has offered to corporations to locate there. But the city needs population growth and the reclamation of the Camden waterfront could go a long way in that pursuit. Crime is down, tech startups are seeing a potential home base for their businesses and employees, and Camden could benefit from the urban pioneering spirit that many younger Philadelphians have.

Further south, Wilmington is undergoing a similar rebirth. Crime destroyed the city’s reputation and still plagues parts of it. For the longest time, there were very few viable rental housing options for employees at JP Morgan Chase, Bank of America, DowDuPont and others.

Much of Wilmington’s comeback story is being written by the Buccini/Pollin Group, which has made a goal of facilitating the addition of 5,000 new residents to Wilmington by 2020, where the company is based. Their principals are from the city and they have a genuine desire to see not just their projects succeed but their city as well.
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