Monday, April 23, 2018

Philly’s Outer Suburbs Leading in Apartment Rent Growth

by Adrian Ponsen, Costar market economist covering Philadelphia Metro Area.

Just three or four years ago, most investors never would have expected that submarkets such as Upper Montgomery County, Upper Bucks County and Lower Chester County were positioned to surge ahead of Center City, University City and the Main Line in apartment rent growth. However, that is exactly the scenario that has played out in late 2017 and early 2018.

With apartment construction at the highest level in more than three decades, the supply of 4 & 5 Star apartment units has more than doubled over the past five years in prime Philadelphia-area submarkets including Center City, University City and the Main Line.

As newly delivered apartments compete for lease-up, asking rent growth has slowed to less than 2.5 percent year-over-year in all of these locations.

Meanwhile, apartment development has been restrained in submarkets more than 25 miles from Center City, and after more than eight years of uninterrupted rent growth in the market as a whole, most renters are competing for the most affordable units available.

Apartment communities in Upper Bucks County, Upper Montgomery County and Lower Chester County are reaping the benefits. All of these submarkets have hosted year-over-year rent growth of over four percent.

It is still up for debate whether these submarkets’ impressive rent growth is a temporary statistical blip or part of a more lasting trend. But with the massive millennial cohort now aging into their late 20s and early 30s and increasingly starting families, renter demand for large, affordable apartments in suburban communities with high-performing public schools could certainly continue to surprise on the upside in the coming years.

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