With a projected vacancy rate in the low 4 percent range, the Philadelphia region will find itself among the nation’s top 20 apartment markets this year, Marcus & Millichap said.
The firm said private-sector employers would create enough jobs to stimulate household formation, while owners of apartment complexes would continue to benefit from a large population of college-age residents and recent college graduates.
Metro-area employers will add 23,500 workers in 2012, expanding total employment 0.9 percent and restoring payrolls to 97 percent of their pre-recession peak. Last year, 10,000 jobs were created.
The metropolitan-area population of residents 20 to 34 years of age is expected to increase substantially over the next three years, providing a new source of demand, Marcus & Millichap said.
Development of new rental housing will likely increase in the next two years, “as builders seek to capitalize on the expected surge in apartment demand in areas such as Center City.”
Builders will bring 1,100 rentals to the metro market this year, compared with only 100 units in 2011. Only 4,100 units are planned.
The vacancy will dip 0.03 percent this year to 4.1 percent. In 2011, the rate fell 1.1 percent.
Asking rents will rise 3.4 percent, to $1,084, per month. Effective rents — the average a tenant pays over the term of a lease — will climb 4.5 percent, to $1,055 per month.
Marcus & Millichap said a limited number of properties for sale and “intense investor demand” would sustain an active investment market and exert downward pressure on cap rates — the ratio between the net operating income produced by an asset and its capital cost.
Investors will continue to take advantage of low interest rates and improving fundamentals, the firm said.
Marcus & Millichapm acknowledged that although there are very few Class A, or highest-end, rental properties for sale, but “would command fierce interest if listed.”
Cap rates for Class A properties are running about 5 percent, since investors are aware of the constraints on new supply, and are willing to pay top dollar.