Tuesday, March 17, 2020

The New Yorkers Are Coming! Migration Into Philadelphia From Nearby Cities Continues to Rise

CoStar released its market update video outlining the top five trends in Philadelphia’s apartment market heading into 2020 a few weeks ago. One of the key trends the video highlighted was the continued migration of college-educated renters into Philadelphia’s urban core.

Without these inflows, Philadelphia’s apartment occupancy rate wouldn’t be able to remain in healthy standing, given the record totals of new construction the market is now seeing. This means it’s important for investors to understand where Philly’s new residents are coming from and what’s driving them to the city in the first place.

While its reporting data is lagged by a few years, the Census Bureau’s County-to-County migration flows dataset is the best source for answering these questions. It shows that just in the past 10 years, there’s been a sea change in terms of migration patterns in and out of Philadelphia in a way that many nationally focused investors still don’t fully understand or appreciate.

During the early years coming out of the last recession, more Philadelphia residents left the city for New York City than vice versa. They left in search of better jobs, higher wages, more lively bars and restaurants, and they were whiling to tolerate New York’s higher cost of living as part of the trade-off.

But as the cost of living in New York has skyrocketed, and Philadelphia’s nightlife has begun to flourish, these migration flows have completely switched. The number of residents moving from New York City to Philadelphia is rising, and has begun to far surpass the number of residents moving in the opposite direction, which has been on the decline in recent years.

A similar trend holds for residents moving between the costly Washington, D.C., suburbs in Northern Virginia and Philadelphia.

Migration from the most expensive pockets of New England including cities such as Boston and Cambridge to Philadelphia are also on the rise, while fewer Philadelphians are moving in the opposite direction.

While cost of living differentials are driving these trends, there appears to be plenty of additional runway for Philadelphia’s migration inflows to continue. Average two-bedroom apartment rents in Boston and New York City range from $3,300 to $3,900 per month, twice Philly’s average rate of $1,700. Meanwhile, the gap in home prices between Philly and its regional competitors is even wider.

From an investor’s perspective, Philadelphia’s growing inflows provide much needed support for apartment leasing. Local millennials are increasingly buying homes, which has kept the metropolitan area’s homeownership rate rising slowly since 2018. But new migrants into the city are more likely to rent. According the most recent U.S. census, 72% of residents who moved into Philadelphia from outside the state during 2018 moved into renter-occupied households during their first year.

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