The Philadelphia region's apartment market continued to thrive in the second quarter, with monthly rents rising and vacancies plummeting even as new product appeared in the city and suburbs.
Data provided by Delta Associates of Washington, which tracks the apartment market nationwide, show this region's Class A vacancy rate at 2.3 percent, compared with 4.9 percent in the same period in 2014. (Class A designates the highest-end and, typically, newest buildings.)
The lower vacancy rate manifested while competition, especially in Center City, continued to ramp up - a testament to strong absorption in the Class A market, Delta reported.
In the city alone, the second-quarter vacancy rate was just 1.6 percent, compared with 5 percent a year ago. The city's Pennsylvania suburbs had a 2.5 percent vacancy rate compared with 4.5 percent at the end of June 2014. The vacancy rate in the South Jersey suburbs stood at 3.1 percent compared with 5.7 percent last year.
Effective rents - what landlords receive, after concessions and allowances - rose regionwide and in each submarket, and South Jersey experienced its highest increase since 2013, Delta reported: 6.3 percent. The Pennsylvania suburbs saw a 2.8 percent increase, while the city experienced a 4 percent rise in monthly effective rents.
For the region as a whole, effective rents rose 3.9 percent from a year ago, said William Rich, Delta's director of multifamily practice.
Average effective rent for the metro area is $1,734, or $1.74 per square foot, Rich said. It averages $2,226, or $2.33 per square foot, for high-rise units in Center City versus $1,517, or $1.50 per square foot, for low-rise product in the suburbs on both sides of the Delaware.
Will the recovering for-sale housing market eventually overtake the rental market?
"With rents at all-time highs and [home] prices having hit bottom, there is now a rough equivalency between owning and renting, at least on a citywide level," said Kevin Gillen, chief economist for Meyers Research and senior research fellow at Drexel University's Lindy Institute for Urban Innovation.
The annual cost of owning the average Philadelphia home is about the same as renting the average city home, he said.
"When you add in the fact that the millennials are aging, getting married, having kids, and improving their incomes along with the economy, both the demographic and financial math for making the move from renting to owning becomes quite compelling," Gillen said.
"Add in all the new rental supply coming on line, which will start to put downward pressure on rents, and you start to wonder when the pendulum will start to swing back the other way, and by how much," he said.
Center City Realtor and developer Noah Ostroff said there is usually a correlation between for sale and rental markets in the city, but they can be taken a few different ways.
"Typically, as the prices of homes have gone up in the city, the rental prices have followed," Ostroff said. "This is happening because of the demand and also because people are paying more for properties they intend to rent.
"As prices on homes go up, some people cannot - or think they cannot - afford to buy, and they turn to rentals," he said. In the city, demand is booming, "and the market is responding with a new fresh supply of inventory for people who want to buy and also for people who want to rent."
Has the rental market reached the overbuilding stage?
David Della Porta, of Cornerstone Communities of Villanova, who builds both for-sale and multifamily rental in the suburbs, said he was concerned "that we might be overbuilding in certain sub-markets," but that "construction of these projects does take time" and demand can shift during that length of time.
"I'm not surprised by the strength of the market," said Della Porta, who has been convinced for more than a decade that demographic trends were favoring rentals over sales and urban-style living over two-acre suburban properties.
"What we predicted is coming true," said John Westrum, of Westrum Development Co. in Fort Washington. "Apartment living, once thought of as need-based, is now a lifestyle choice.
"Millennials are coming out of their parents' basements in search of a more luxurious lifestyle, and are happy to share with friends to pay part of the rent," said Westrum, who has projects in Brewerytown and Norristown.
Noted Marianne Harris, sales and marketing director of Dranoff Properties in Philadelphia: "Clearly, renting an apartment is no longer seen as a means to an end - saving up to buy a first home.
"If something breaks, they just call the front desk to get it fixed," Harris said. "If another employment opportunity presents itself in a different part of the country, they can pack up and go."