INVESTMENT FORECAST

MULTIFAMILY 2020
Philadelphia Metro Area

Widespread Renter Demand Drops Vacancy to Record Economic Trends

Low; High Yields Draw Buyers From Nearby States HH Growth Employment Change (%)

New HH Formations (thousands)

24 4%
Construction cranes move beyond downtown as effective rents climb higher. Philadelphia’s ro-

Year-over-Year Change
bust education, healthcare, and technology sectors continue to support net in-migration, adding to 18 3%

already-strong renter demand. The metro’s greater residential needs will be met by record supply
12 2%
additions, yet vacancy will drop to a two-decade low this year. Construction activity is shifting away
from core neighborhoods toward the Pennsylvania suburbs. Fewer than 1,000 apartments will open 6 1%
in Center City this year, less than half the arrivals from 2019, abating upward pressure on vacancy
0 0%
in the downtown submarket. Numerous deliveries are instead going to King of Prussia and Bala 11 12 13 14 15 16 17 18 19* 20**
Cynwyd, near suburban office and retail centers. These live-work-play districts appeal to renters
seeking convenience at living costs below downtown rates. Fewer openings in other parts of the
market are encouraging faster rent growth, particularly in Bucks, Delaware, and Chester counties. Completions vs. Absorption
Effective rates are advancing by slightly wider margins among Class A and B units, contributing to a Completions Net Absorption
metrowide pace that denotes Philadelphia as one of the top performing Northeast markets in terms
12
of rent growth.

Units (thousands)
9
Investors keep focus on popular residential neighborhoods. Improving apartment operations
6
continue to pique investor interest, particularly downtown and in Philadelphia’s key suburban
residential hubs. Buyer competition for listings in Center City, University City, King of Prussia, and 3
along the Main Line support elevated per unit sales prices in those areas. Parties seeking lower en-
try costs may turn to adjacent submarkets, such as Northeast Philadelphia, where some renters are 0
11 12 13 14 15 16 17 18 19* 20**
also relocating for more affordable rents. Yield-oriented investors can find opportunities for above
market cap rates in less central suburban towns such as Willow Grove. Overall, first-year returns
lie in the high-6 percent band, exceeding those of other major Northeast/Mid-Atlantic metros, Vacancy and Rents
distinguishing Philadelphia among out-of-market investors. Vacancy Rent Growth

2020 Market Forecast

8%

6%
Employment About 20,000 jobs will be created in 2020 as a low-4 percent unemployment
up 0.7% rate constrains hiring compared with last year.
Rate

4%

2%
Construction Roughly 100 more units will arrive this year compared with 2016 when a
5,600 units then-record 5,500 apartments were completed. Last year approximately 5,200 0%
rentals opened. 11 12 13 14 15 16 17 18 19* 20**

* Estimate; ** Forecast
Vacancy An above-average number of apartments being absorbed will help reduce the Sources: CoStar Group, Inc.; RealPage, Inc.; Real Capital Analytics
down 20 bps metrowide vacancy rate to 3.2 percent in 2020, its lowest year-end value since Sales Trends
2000. Average Price Price Growth
Average Price per Unit (thousands)

$200 60%
Year-over-Year Growth

Rent The average effective rent will rise to $1,450 per month this year following a 5.2 Philadelphia
$150 Office: 40%
up 4.7% percent rate of improvement in 2019.
Sean Beuche Regional Manager
$100 Street, Suite 1510
2005 Market 20%

Investment Upcoming large-scale office developments in Conshohocken and Newton Philadelphia, PA 19103
(215) 531-7000
$50 | sean.beuche@marcusmillichap.com 0%
Square may drive increased multifamily investment into these areas in expecta-
tion of higher renter demand. $0 -20%
10 11 12 13 14 15 16 17 18 19*
Metro-level employment, vacancy and effective rents are year-end figures and are based on the most up-to-date information available as of November 2019. Effective rent is equal to asking rent less concessions. Average prices and cap rates are a function of
the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Forecasts for employment and apartment
data are made during the fourth quarter and represent estimates of future performance. No representation, warranty or guarantee, express or implied may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a
forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.

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