Philadelphia is in a bit of a multifamily construction boom, and considering our reputation for New York City construction costs and Philadelphia rents, thats a bit counterintuitive. AthenianRazak director of multifamily management Kathie Ellzey and analyst William Knapp, however, tell us the dynamics make sense.
1) There's a Whole Lot in the Pipeline
A number of new properties have come on line in the last year, including PMCs 2040 Market, and by AthenianRazaks estimates, over 3,000 units could be added in the next two years. Rising rents have made ground-up development possible, despite Philadelphias high construction costs. Development activity is also pushing outwards from Center City, and there are new reuse projects, such as 1148 Wharton St, which is being developed by 806 Capital.
2) Greater Center City Can Absorb New Units
Can all of the new units can be absorbed? The Center City District reports that Greater Center City added over 10% to its population (1,000 households a year)between 2000 and 2010,and projections from the Delaware Valley Regional Planning Commission imply that will continue through 2020. Still, new supply will outstrip this population growth within the next two years. But since supply is currently tight--vacancy under 2%--the market will be able to absorb a good chunk of the new units without pushing vacancy too high.
3) The Boom May Abate, But Demand Won't
Household formation will continue to be strong because demographic shifts are supporting urban apartment living, and recent economic troubles have slowed single-family home sales. And besides,Philadelphia has a flourishing restaurant scene--which encourages city-dwelling. New multifamily development will probably slow after the start of 2015, but there shouldnt be much doubt that the market could handle something close to 1,000 new units per year for the foreseeable future, according to AthenianRazak.
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