Thursday, November 4, 2021

Investors Remain Shy, but There’s a Lot To Like in Scranton’s Multifamily Market

 By Ben Atwood CoStar Analytics

There’s a curious lack of investment in Scranton, Pennsylvania’s white-hot apartment market.

While a dearth of sales is not abnormal for this northeastern corner of the commonwealth, the strength of its apartment market could put Scranton in the spotlight.

Local multifamily vacancies currently hover around 2%, some of the lowest figures in market history. The strong demand and limited supply have driven year-over-year rent growth to an unprecedented 9%, which is nearly three times the market's 10-year historic average.

Despite such transcendent numbers, investors have remained cautious. Just over $10 million have been spent acquiring Scranton apartments in the past four quarters, and these were mainly transactions involving locals buying and selling small assets.

No doubt the market's historic issues are suppressing investor interest. Both Lackawanna and Luzerne counties have been losing residents for a generation. The latest census data shows this outmigration has not stopped, and the relatively tepid economy would give many outsiders pause.

However, the coronavirus pandemic may have changed things, particularly for multifamily.

As a result of the shutdown, Scranton's warehouse sector is absolutely booming. The surge in online shopping brought about by the pandemic has exponentially increased demand for shipping facilities and last year, Scranton led Pennsylvania’s secondary markets in demand. This year has been equally strong, as its warehouses have seen over 5 million square feet of net absorption in the past four quarters alone.

Major retailers are moving in to take advantage of its prime location on the North Atlantic Trade Corridor. This growth is creating thousands of construction, trucking and warehousing jobs.

The region has also seen an uptick in interest from international manufacturers, and the advent of remote working could be bringing people back into the market. Scranton is just two hours from Philadelphia and New York. A hybrid or remote schedule would allow workers in those markets to pay Scranton rents on a big-city salary.

These factors could all produce a slight increase in demand for apartments, which is all it would take to keep this region's multifamily sector rock solid. This is because very little institutional level projects have been built here over the past decade.

Few people take a chance building supply in such a challenged region, and the elevated construction prices the pandemic has caused will likely keep inventory tight for some time.

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