While there has been conjecture in some quarters of the local real estate blogosphere that perhaps all the new construction that’s been happening means there is a housing bubble in Philadelphia, the latest quarterly data from Reis ought to deflate that notion.
Reis’s data shows that not only is the Philly metro’s apartment vacancy rate still very tight, it actually shrank by 0.6 percentage points over the past 12 months to 3.1% – lower than the national average of 4.2%, which they also consider very tight. The implication is that the tighter the rate is, the greater the demand there is for apartments.
By comparison, New York and San Francisco are tied at 3.3% vacancy, Pittsburgh is at 3.2%, and Boston is at 4.3%.
At least at the metro level though, Philadelphia is still not seeing huge region-wide spikes in rent the way some other big coastal cities are. Over the past 12 months, asking rents in Philly grew by 2.8% – only the 41st highest growth rate in the nation – and effective rents grew 3.0%, putting us in 40th.
For context, San Jose’s effective rents grew at a rate of 9.2%, San Francisco and Oakland’s grew at around 7.5%, and Boston’s grew at 4.9%. Interestingly, New York rents grew at the same rate as Philly’s, at 3%, though New York rents are already at a much higher level on average.
New York’s average effective rent in the 4th quarter was $3,222.52, while Philly’s was just a little over a third of that at $1,123.91. Compared to our peer cities like San Francisco ($2,236.55), Washington, DC ($1,536.00) and Boston ($1,897.62), Philly rents still look pretty affordable, though there’s still an East Coast premium. Pittsburgh’s average effective rent in the 4th quarter was just $890.75, for instance.
Last February, real estate industry pros at the Realshare Conference here were predicting a “wall of capital” flowing into the Philly multi-family market, so the occupancy rate is expected to loosen. But whether rents become more affordable in tandem as all these new apartment buildings hit the market remains to be seen.
Reis senior economist Ryan Severino expects that, nationally at least, rents are likely to keep trending up, if more slowly. You can read Severino’s comments on the 4th quarter rental market trends here, and view the metro-level data here.