Thursday, August 8, 2019

Number of Completed Center City Apartments to Slow Over Next 12 Months

For the past three years, over 2,000 apartment units have been built annually in Center City Philadelphia. This growing supply of apartments has made it more difficult for landlords of existing high-end buildings to raise rents, as they’ve had to compete with a slew of new, amenity-laden properties that often were offering discounts of one- or two-months free rent to get their first tenants in the door.

But competition from newly built properties is set to ease in the months ahead. Only 600 new apartment units are on track to be completed in Center City between June 2019 and June 2020, less than a third the rate of apartment completions from 2016 to 2018.

Center City apartment rent growth has already been accelerating since new apartment completions began to slow in 2019. As long as Philadelphia’s economy can remain healthy in the year ahead, further reductions in completed apartment projects through mid-2020 could give landlords increased leverage in lease negotiations.

This window of minimal new apartment completions will only be temporary, though. A tariff-induced spike in steel prices and rising interest rates in early 2018 could be the main reasons behind the upcoming lull in completed projects. But as steel prices and interest rates started to fall again in late 2018, and as the typical build time of high rise projects lasts about two years, completed projects are set to spike again 12 to 18 months from now, especially when projects like PMC’s 612-unit RiverWalk complex and RAL Cos.’ 477-unit 1300 Fairmount are completed.

These projects could begin preleasing as early as the summer of 2020. But until then, Center City apartment landlords will face less competition from new projects than what they’ve grown accustomed to in recent years.

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