Multifamily Construction Wave Crests In Suburban Philly Amid High Demand And Low Supply

Philadelphia’s collar counties are a notoriously challenging environment for multifamily development. A gauntlet of municipal red tape and frequent opposition from hard-to-please homeowners present high barriers to entry.

But the region’s CRE community is pushing through bureaucracy, bringing a sizable wave of new projects online amid soaring demand and scarce supply.

“If you build it, they will come,” said Korman Communities Chief Operating Officer Lea Anne Welsh, who helped the company's AVE sub-brand build hundreds of apartments in Blue Bell, Malvern and King of Prussia.

There were 6,255 units in construction across suburban Philadelphia in March, according to the metro area’s most recent Yardi Matrix multifamily report. That's up from the 4,671 counted two years prior, but down slightly from 6,472 in March 2024.

The region's collar counties haven’t experienced the same building boom as the city, where there were well over 10,000 units in the pipeline earlier this year.

Yet suburban Philly is the fifth-most competitive rental market in the nation, with a nearly 95% occupancy rate and 11 prospective tenants for each available unit, according to a report from RentCafe released earlier this month.

That’s why developers are willing to wade through a sea of building restrictions and review meetings, which AVE Director of Development Jeffrey Brown said stretches entitlement timelines in the region twice as long as what he’s experienced in Sun Belt locales like Tampa, Austin and Phoenix.

“Patience is the key to doing anything in the suburbs,” he said.

Local restrictions that vary widely across the region's fragmented municipal landscape are a challenge to navigate. Companies with deep local knowledge have a big leg up in this context, Brown said.

The CRE community also has to navigate feedback from NIMBY residents, said BET Investments President Michael Markman.

The developer, who plans to build about 600 residential units at BET's Promenade East project next to a grocery-anchored strip center in Upper Dublin, drew a distinction between challenges in the inner-ring suburbs and less populated regions further from the city.

“In lower Montgomery, you're obviously very densely populated, and trying to even find real estate that can support a larger development project is hard,” he said during Bisnow's State of Montgomery County event last month.

From there, “trying to get the stakeholders in that specific municipality to buy into the parking issues that could potentially arise, the impact on the school districts,” is a whole other challenge.

Markman has found that residents of suburbs further away from Philly are often opposed to dense development altogether.

“They want to maintain the open space,” he said.

Often, the outcome of this municipal gauntlet is projects that are smaller than what developers initially envisioned, said Newmark Executive Managing Director Erin Miller.

But the towering barriers to entry mean that any supply developers manage to get across the finish line is disproportionately valuable. Owners then charge high rents, which creates a problem for residents.

“The market is so tight throughout the whole region,” said West Whiteland Township Director of Planning and Zoning John Weller. “We do have school teachers and firefighters and policemen and government employees like myself who also need places to live.”

'Newfound Need For Flexibility'

Amid the current supply crunch, the township of Horsham saw $125M worth of multifamily transactions in the year leading up to March 2024, Yardi Matrix reported. That’s more than anywhere else in the region except Phoenixville in Chester County, which saw $138M. At $109M in transactions, Conshohocken was third on the list.

AVE plans to capitalize on interest in Horsham by building 274 units on the site of a former office building at 723 Dresher Road. Construction is set to begin in September.

“There’s a newfound need for flexibility,” Welsh said of the current housing market, and as a result, “the renter pool has grown substantially.”

The trend is particularly strong among 40-to-70-year-old empty nesters, who make up a large share of the tenants at AVE’s other suburban Philly properties. 

That demographic is less likely than past generations to stay put in a home they own when entering their golden years.

Having “boots on the ground” in the form of a recent previous delivery in Blue Bell was helpful when it came to getting the Horsham development approved, since AVE could give lawmakers tours of the existing property and provide data about its impact on the community, Welsh said.

But the company had a contingency plan in case the entitlement process in Horsham went awry. Before buying the property, AVE ensured the existing office building was in good enough condition to be renovated and modernized, Brown said.

AVE Horsham will be located about three miles from the closest Southeastern Pennsylvania Transportation Authority rail station in Hatboro.

Philly’s Pennsylvania suburbs were mostly built around commuters who traveled into Center City on various rail lines that were eventually consolidated under SEPTA in the 1960s.

The agency has announced steep service cuts and fare increases due later this year as it stares down a $213M budget deficit while lobbying for additional funding from Harrisburg.

Worst-case-scenario service cuts could slash property values by more than $12B across the suburbs, according to an April SEPTA study. But Welsh said it was unlikely to have a major impact on the multifamily sector.

“I don’t think it will have much of any impact on suburban multifamily, unless you’re truly a [transit-oriented development] site,” she said.

The cuts will have more of an impact on the retail and service sectors in places like King of Prussia, which depends on urban workers using SEPTA to commute in for evening shifts, Welsh said.

Still, specific multifamily submarkets might suffer. Welsh singled out Conshohocken as a place with a younger demographic more likely to rely on the rail connection to Center City.

Transit-Oriented Development And SEPTA Cuts

Despite SEPTA’s funding woes, its regional stations and the relatively dense neighborhoods that often encircle them remain an enticing backdrop for multifamily developers.

The agency is soliciting proposals for a transit-oriented development to replace part of a vast parking lot at the Ambler station.

The drive for development there may be partly inspired by new multifamily projects around the regional rail station in Ardmore. Hundreds of new apartments have come online in the community, which has a direct connection to New York City via Amtrak.

But resident backlash to the new density led Lower Merion Township to amend the zoning code in Ardmore after projects like Bozzuto Group's 131-unit Coulter Place complex were approved.

West Whiteland Township has Amtrak service on the same route, though riders there don’t step off the train and into a bustling town center. The township is a far-flung exurb that until recently had ample plots of undeveloped land that are now rare in inner-ring suburbs like Ardmore.

That’s no longer the case.

“Even out here we have very little open green space that’s left,” Weller said.

These days, West Whiteland might be best known for Abrams Realty & Development’s plan to rework the ailing Exton Square Mall as a mixed-use project with hundreds of rental apartments and dozens of for-sale townhomes.

The effort is part of a broader push to add apartments to shopping centers around the region. That includes BET's work in Upper Dublin and Keystone Development + Investment’s plan to replace an office building near the Plymouth Meeting Mall with 149 units.

But the multifamily development boom in West Whiteland is much broader than Exton Square.

The township approved around 2,300 new units between 2015 and the end of 2024, which is equivalent to about 25% of its entire housing stock, Weller said. That included approvals for 1,300 units between 2016 and 2018 alone.

The construction blitz was made possible by high-density zoning the township implemented in the early 2000s, which Weller said was bold for the time. 

“We did not impose any density limit on residential development” in the central part of the township aside from some green space requirements, he said. “Until these new projects came along, we actually didn’t have much in the way of residential use there.”

The impacts of that haven't gone unnoticed, and the redevelopment of Exton Square appears to have seen a tipping point.

In February, West Whiteland amended its zoning code from allowing unlimited density in the town center to just six units per acre, Weller said. The Abrams project is grandfathered in under the earlier standards.

Perceptions of increased traffic and concerns about stormwater management after flood events in recent years were major catalysts for the backlash.

Weller doesn't believe the additional Exton Square traffic will be worse than what that neighborhood saw when the mall was thriving.

West Whiteland has since implemented more stringent stormwater management standards, and the topic was a major point of consideration when Abrams updated its proposed site plan to align with community feedback.

Where's Next?

West Whiteland is not king when it comes to Chester County’s exurban construction boom.

Neighboring East Whiteland and the former steel town of Phoenixville have actually added more units in recent years, Weller said.

The planner drew a comparison between the redevelopment of Phoenixville and places like Conshohocken and Manayunk, which he said all had “Rust Belt” vibes before they were rediscovered by more upwardly mobile residents in recent decades.

A similar renaissance happened in Downingtown, and Weller thinks nearby Coatesville could be up next.

“It is currently somewhat of a distressed community,” he said of the town whose history is defined by another steel mill.

In addition to its walkable downtown with historic character, Coatesville has a major advantage that Phoenixville didn’t — a direct connection to Philly and New York City via Amtrak.

But Weller isn't sure if the Philly suburbs are due for another residential boom.

“That’s a question that depends on the vitality of the whole region,” he said.