Q3 2022 Multifamily Real Estate Report: Philadelphia, PA
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Going into Q3 of 2022, Philadelphia’s multifamily market remained robust, despite mounting economic questions.
The occupancy rate of stabilized properties remained at 97%. Certain submarkets are regaining popularity with renters, but average rent rose over 11% year-over-year to $1,700, burdening Americans in the city.
Philadelphia added 113,800 jobs throughout the first two quarters. Unemployment rates are back to pre-pandemic levels at 4%; however, that number is still higher than the national average of 3.6%.
General Area Overview & Demographics
Philadelphia, PA, is a city of great diversity, with a population estimated to be 1.584 million in 2019. Philadelphia is the sixth-most populous city in the United States and is considered a keystone state for its major contributions to American culture and history.
Philadelphia’s diverse population is made up of many different ethnicities, with nearly 35% of people identifying as African American or Black, while almost 20% are Hispanic or Latinx Americans. Philadelphia also boasts a high percentage (13%) of foreign-born citizens, making it one of the most immigrant-friendly cities in the United States.
The cost of living in Philadelphia is slightly below the national average, making it an attractive option for individuals looking to move into the area. There has been an influx of young professionals who have flocked to Philadelphia over recent years due to its increasing job opportunities and attractive residential options.
Philadelphia’s economy remains strong despite recent economic challenges due largely to its focus on technology and start-up businesses. As such, Philadelphia remains an attractive target for investors looking for multifamily real estate opportunities.
Philadelphia is home to two highly-renowned universities: the University of Pennsylvania and Drexel University. These institutions not only contribute greatly to Philadelphia’s economy, but they also bring a youthful energy that amplifies Philadelphia’s vibrant culture.
Philadelphia is situated in a temperate climate with four distinct seasons. Summers are hot and humid, as Philadelphia experiences temperatures that can reach up to 80F (26.6C) during June, July, and August.
The average temperature for Philadelphia during these months usually falls between 68F (20C) and 73F (22C). Winters in Philadelphia are cold, with temperatures dropping to an average of 25F (-3.9C) in December, January, and February.
Summary of Philadelphia Multifamily Real Estate Performance in Q3 2022
Throughout the first half of 2022, developers completed over 1,700 units and had nearly 15,000 more in progress. Transaction volume reached nearly $1.2 billion, though activity tapered off in recent quarters. Prices rose by 35% during this period compared to last year.
Vacancy is around 2.8% this year, making 2022 the second year since 2000 to post less than 3% availability.
What are multifamily rents like in Philadelphia?
Following last year’s 13% rent growth, the market is expected to moderate in 2022. Rates are projected to rise at one of their swiftest paces for decades. The average rent is projected to finish at around $1,700 per month this year.
Nearly all submarkets had increases in rent.
Purchase & Leasing Activity
Multifamily investors are increasingly looking to suburban areas for opportunities, as evidenced by first-half 2022 sales. Compared to this time last year, there’s been an additional $584 million in deals.
Even though the unit price rose 35% this year to nearly $198,000, it remained below the nation’s $217,000 average.
Amidst inflation and higher interest rates, transaction activity saw a decline, with most transactions in this quarter coming from already-arranged deals.
Notable Multifamily Real Estate Deals in Philadelphia in Q3 2022
Several notable office deals and leases occurred in Philadelphia in Q3 2022. These include:
- Premier Properties’ purchase of Parkview Towers for $179 million;
- Cue Residential’s purchase of Burlington Pointe for $45 million; and
- Pantzer Properties’ purchase of The Point at Exton for $82 million.
These are among other notable sales transactions.
New Multifamily Real Estate Development Activity in Philadelphia in Q3 2022
This year’s rental completions will reach an all-time peak, adding approximately 2% of new stock to the metro areas of Philadelphia, particularly in the Central Business District, where 2022 projects alone equal approximately 6% of existing inventory.
Units added right before Q3 increased supply by roughly 1.4%. Over 1,900 units were added to the urban areas of Philadelphia, growing inventory by nearly 5%.
Market Forecast for Philadelphia’s Multifamily Real Estate Market
As capital costs rise, deal flow could become increasingly difficult in the last half of 2022 and going into 2023, with average sale prices seeing a 13% increase. Buyers are now showing preference toward Class C buildings.
As Philadelphia’s city core continues to show more life and activity as job, population, and economic growth move forward, multifamily real estate in Philadelphia should continue to hold at stable levels.
Takeaways for Multifamily Real Estate Investors
If an investor is considering getting in on Philadelphia’s multifamily market, they should strongly look into older Class B and Class C buildings that are located near urban areas. These are showing signs of being more popular with residents in the area.
As always, each investor must do their own research to decide what’s best for them and their particular situation..
Find Commercial Real Estate in Philadelphia, PA With the Help of a Local Agent or Broker
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