Center City Philadelphia continues to be one of the most vibrant residential downtowns in the country. Millennials and empty-nesters are attracted to the city’s myriad live, work and play opportunities, and the total number of Greater Center City residents has risen 17 percent since 2000. Overall the market is holding up strong; the average occupancy is 95 percent and it is expected to remain at this level for the foreseeable future. Annual effective rent growth is projected to be 3 percent in 2017 and average 2.8 percent from 2018 to 2020. The MSA’s largest job sector — higher education and healthcare services — has increased by 17 percent since 2005 and now provides 37 percent of all jobs in Philadelphia. Total job growth is projected to be 1.6 percent or more than 15,000 new jobs in 2017. Since the beginning of 2015, 23 companies, including EisnerAmper, WeWork and GSI Health, have established offices in the submarket.
Karen Iman, Cushman & Wakefield
Multifamily investors and developers have been focused on Center City for the past few years. However, interest in some suburban markets has increased significantly as evidenced by the development and sale activity in 2016. More than $1 billion of sale transactions were recorded in 2016 — all in the suburban markets.
Supply Boom Continues
Residential construction activity remained robust through 2016 and is forecast to continue into 2017. As the year drew to a close, the Philadelphia MSA was on track to record the highest annual new construction total in the market’s history.
In Center City, 4,047 apartment units have been delivered to market in the past three years, greater than the total built in the previous 10 years. An additional 3,056 apartment units are planned or under construction and scheduled for delivery in the submarket during the next two years. There is an expectation that the amount of new inventory delivered in Center City will begin to taper off in 2018.
Submarkets to Watch
Multifamily transaction activity and investor interest are heating up in several of Philadelphia’s high-profile submarkets of King of Prussia, West Chester, Bala Cynwyd and Phoenixville.
King of Prussia is the largest employment center in the suburban Philadelphia region, with $1 billion in development projects in progress. The submarket is on track to attract 4,000 new residents and 2,000 new office jobs.
• West Chester is a thriving college town known for its boutiques and eateries. Access to employers, such as QVC Studios, Vanguard and Wawa, is a considerable draw.
• Situated on the City Avenue, Bala Cynwyd is the ideal location for those commuting into Center City as well as the suburbs. Two train lines and several bus routes serve the area.
• Historic Phoenixville boasts a walkable downtown, outdoor recreation options and proximity to major employers, including Merck, GlaxoSmithKline and Lockheed Martin.
In 2016, deals were scattered throughout these suburban markets, each of which offers a desirable mix of proximity to employment and education, abundant retail and lifestyle amenities and accessibility to transportation infrastructure.
— By Karen Iman, Senior Director, Capital Markets, Investment Sales & Acquisitions, Cushman & Wakefield. This article first appeared in the January/February 2017 issue of Northeast Real Estate Business.