Friday, November 13, 2020

King of Prussia's Apartment Market Bounces Back After Rough Start to 2020

By Adrian Ponsen CoStar Analytics

 The initial weeks of the coronavirus pandemic were challenging times for luxury apartment properties across America. But King of Prussia, one of the Philadelphia area’s recent hotspots for suburban multifamily construction, faced particularly challenging circumstances heading into the crisis.

As developers sought to diversify King of Prussia’s office- and retail-heavy built environments, more than 1,800 new luxury apartments completed there between 2017 and 2018, doubling the local inventory of high-end units.

Property managers were pleased to see occupancy rates within most of these new projects surpassing the 90% benchmark for the first time heading into early 2020. Proximity to the more than 27 million square feet of office parks within a 5-mile radius proved key as many renters jumped at the chance to live closer to work and shorten their commutes. The newly built Villages at Valley Forge mixed-use development had also begun to differentiate King of Prussia from its surrounding suburbs, providing an oasis of walkable restaurants and other retail options in a county otherwise inundated with congested interstate highways.

Unfortunately, just as this new generation of apartment properties were nearing stable occupancy levels, public health concerns, mass layoffs and government-imposed business closures ground leasing to an almost complete standstill during the initial months of the pandemic.

To make matters even more difficult, another 638 units had just delivered in King of Prussia during late 2019 and early 2020. This tally was made up of two large projects, Le Cesse Development's Skye 750, and Hanover Cos.' Hanover Town Center. The pandemic thrust these properties into one of the most challenging periods for lease up in decades.

In order to coax new tenants into filling King of Prussia's large batch of vacant units, landlords of high-end properties dropped average asking rents by almost 6% between March and June, a time of year when rents normally rise coming out of the slow winter leasing period.

Landlords also ratcheted up discounts for prospective renters. Prior to the pandemic, offerings of one month in free rent were common among new properties during their first few months of leasing. But as competition heated up, nearly every high-end building in King of Prussia began offering these specials, with numerous properties even granting four to eight weeks free to tenants willing to sign leases longer than 12 months.

The good news for landlords and property managers is that these discounts are succeeding at attracting new tenants. While discounts of one to two months free rent still remain widespread, asking rents have been recovering since June and have already made up more than half of their pandemic-induced losses.

Occupancy rates are also firming up. Excluding properties completed after 2018, the average vacancy rate among luxury King of Prussia apartments has been cut almost in half since 2019, hitting 9% heading into the winter of 2020-2021.

Skye 750 and Hanover Town Center, the pair of apartment communities that completed during late 2019 and early 2020, reached occupancy rates of 71%, and 41%, respectively, by the fall of 2020. Together, the two projects have averaged 17 move-ins per month since opening, a healthy pace that is slightly ahead of Philadelphia’s average lease-up rates during the three years prior to the pandemic.

King of Prussia has also had one advantage many other apartment development hotspots in and around Philadelphia haven’t. Residential development sites are beginning to run low in the Villages at Valley Forge master-planned community. After Hanover Town Center completed in February 2020, there were no other apartment projects left under construction in King of Prussia, and none have broken ground since.

All of this means that King of Prussia's latest batch of luxury communities won’t have to compete with any newer projects delivering nearby until at least mid-2022. This leaves King of Prussia’s high-end properties well positioned to outperform most luxury apartments in the Philadelphia area during the months ahead.

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