Warmth in Philly’s Multi Family Market

by Steve Lubetkin, GlobeSt.com
Vacancies declined and rents edged upward in the Philadelphia multifamily market, according to research.

Optimism about the economy and employment prospects are contributing to the construction activity that “may be seen as a response to growing rental housing demand and shifting housing preferences away from ownership,” says the report, prepared by senior research analyst Art Gering. “From another perspective, the recent and expected additions to rental stock may be merely catch-up to upgrade stock after limited building during and immediately following the recession.”

Among the report’s key trends were:

Tenants moving into 2,000 units during the first quarter, reducing the overall market vacancy rate by 30 basis points to 4.4 percent. In the South Jersey submarket, vacancy also declined to the low four-percent range.

Older properties built in the 1970s are performing well, with vacancy dropping to the four percent level, a 70 basis point decline.

Rents in the metropolitan Philadelphia area rose 0.9 percent. In South Jersey, the increase was about 2.6 percent.

In 2015, developers will make available 4,800 units, most of which are market-rate apartments.
Cap rates start in the low-five percent range for class A properties or buildings in highly urbanized areas of the metropolitan market, and extend higher than 7.5 percent for class C assets in secondary submarkets.

“The Federal Reserve recently indicated that it may raise its short-term lending benchmark any time after its April meeting,” says William E. Hughes, senior vice president, Marcus & Millichap Capital Corporation in the report. “The timing of the first increase in the Fed funds rate rests upon the central bank’s confidence that inflation will move back to its target two percent rate over the medium term. For this to occur, the labor market must tighten further and wage growth must accelerate. Against the prospect of an inevitable rise in interest rates, investors remain highly motivated to purchase multifamily assets and debt providers continue to compete for market share while also maintaining discipline.”
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