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Vacancy declines and rents rise in Northeast Philadelphia 4,600 units Construction:
due partly to subdued construction. A faster pace of hiring will be completed Deliveries slow to their lowest
compared with 2017 supports continued in-migration and level in three years, with over
household formations in Philadelphia, lifting an already-high level 40 percent of arrivals heading
of rental demand. Net absorptions in excess of supply additions toward Center City. In 2017
drop the vacancy rate to 4 percent for the first time in 12 years, 5,200 units were completed.
raising rents by more than last year. Availability is tightest in
Northeast Philadelphia, the metro’s second-largest apartment 40 basis point Vacancy:
submarket. A lack of substantial new completions over the past The net absorption of units
decrease in vacancy
five years directs demand to existing stock and keeps vacancy surpasses 5,000 for the second
low, prompting above-market rent gains in that time. year in a row, dropping metro
vacancy to 4 percent following a
Developers target familiar areas. Center City, the Norristown/ 40-basis-point decline last year.
Merion area, and Wilmington continue to see the largest share of
deliveries. That includes two projects, each with over 300 units, 3.4% increase Rents:
arriving by year end. While demand for rentals remains high, The average effective rent rises
in effective rents
the rapid pace of completions in the urban core is starting to in 2018 to $1,298 per month.
weigh on property fundamentals there. Effective rents will stay Last year, an advance of 2.7
about flat in Center City as vacancy rises 50 basis points. This is percent occurred.
especially the case for Class A product, which is facing the most
competition from construction and rentals in neighboring areas.
Investment Trends
• Sales velocity improved in the Fairmount/Northern Liberties area
Local Apartment Yield Trends
of Philadelphia over the 12-month period ending in September.
Apartment Cap Rate 10-Year Treasury Rate
Properties recently sold there tended to be older and smaller
than the market average, but they offer a compelling location
12%
near the market’s urban core. Cap rates ranged from mid-6 to
9% above 9 percent at an average sale price of $262,000 per unit.
• Investors interested in Class B properties looked toward
Rate
6%
Northeast Philadelphia. A range of post-2010-built assets with
3% fewer than 50 units changed hands in Fishtown, Brewerytown,
and surrounding neighborhoods. These new or stabilized assets
0% benefit from shifting demographics and proximity to downtown,
* 00 02 04 06 08 10 12 14 16 18*
commanding an average sale price of $275,000 per unit and a
below-market average initial return of high-5 percent.
$135 12%
$100 8%
Philadelphia
3Q18 – 12-MONTH PERIOD
Employment Trends EMPLOYMENT:
Local Apartment Yield Trends
4%
Metro United States
1.6%
Apartment Cap Rate 10-Year Treasury Rate
increase in total employment Y-O-Y
Year-over-Year Change
12%
• The pace of hiring quickened year over year in September
3%
as roughly 45,800 positions were added. Increased job
9%
creation contributed to a 70-basis-point decline in the un-
2%
Rate
6%employment rate to 4.0 percent, a 17-year low.
1% • Employment growth was most prevalent in the profes-
3%
sional and business services as well as education and
0%
0%healthcare services sectors, adding a total 26,000 jobs.
14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18*
Year-over-Year Growth
the 12-month period ending in September
$135 12% than over
Units (000s)
9
the previous yearlong period. In that span developers
$100 8%submarket.
maintained their focus on the Center City
6
3
• $65
More than 7,300 units are underway4% with completion
dates scheduled through the first half of 2021. The
0 largest 2019 delivery is the 539-unit Hamilton
$30 0% downtown.
14 15 16 17 18* 14 15 16 17 18*
* Forecast
Multifamily Research | Market Report
DEMOGRAPHIC HIGHLIGHTS
3Q18 MEDIAN HOUSEHOLD INCOME 3Q18 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS
*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate
9%
Gloucester County 2% 2.8% -40 $1,178 0.2% • The average sale price for Class B assets improved at
Rate
SALES TRENDS
a greater
6% rate than for Class A or C properties, due in
Bucks County 1% 3.1% -40 $1,215 3.1% part to the sale of more contemporary assets.
3%
0%
Outlook: Throughout Philadelphia sizable rent gains
Delaware County 3.1% -70 $1,077 3.2%
and extremely
0% tight vacancies will keep private investors
14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18*
targeting apartments, particularly in submarkets with a
Northwest Philadelphia 3.2% -130 $1,350 2.6%
large inventory of $1 million to $10 million stock.
$170 16%
12
Year-over-Year Growth
9
North Montgomery County 4.0% -90 $1,362 4.8% $100 8%
6
6%
e
Multifamily Research | Market Report
Los Angeles: New York City
Adam Christofferson Senior Vice President/Division Manager J.D. Parker Senior Vice President/Division Manager
(818) 212-2700 | adam.christofferson@marcusmillichap.com 260 Madison Avenue 5th Floor New York, NY 10016
(212) 430-5100 | jd.parker@marcusmillichap.com
Jim Markel
3Q18 Regional
ApartmentManagerAcquisitions
| Encino By DAVID G. SHILLINGTON, President,
(818) 212-2700 | jim.markel@marcusmillichap.com
By Buyer Type John Krueger Regional Manager | Manhattan
(212) Marcus
430-5100 |&john.krueger@marcusmillichap.com
Millichap Capital Corporation
Tony Solomon First Vice President/Regional Manager | West L.A.
(310) 909-5500 |Other,
tony.solomon@marcusmillichap.com
1% Cross-Border, 9% John• Horowitz
Fed pushes First Viceovernight lending
President/Regional Managerrate higher, cites economic
1 MetroTech Center, Suite 2001
Enrique Wong Vice President/Regional Manager | Downtown L.A. strength in case for additional increases. The Federal Reserve
Brooklyn, NY 11201
(818) 212-2700 | jim.markel@marcusmillichap.com
Equity Fund increased
(718) 475-4300 the federal funds rate by 25 basis points in late September,
| john.horowitz@marcusmillichap.com
Damon Wyler Regional Manager | Long Beach
& Institutions, 23% lifting the Fed funds rate to 2 percent. Remarks from the Fed highlight
(562) 257-1200 | damon.wyler@marcusmillichap.com Brooklyn
a robustOffice
economy, spurred by accommodative fiscal stimulus,
John
while Horowitz Vice President/Regional
inflation remains broadly inManager
line with expectations. Provided
Private, 63% 1 MetroTech Center, Suite 2001
Listed/REITs, 4% the economy
Brooklyn, NY 11201
continues to perform as expected, the Fed is likely to
increase
(718) rates
475-4300 in December, as well as up to three times next year.
| john.horowitz@marcusmillichap.com
• Manhattan
Benchmark Office interest rates, lending costs push higher post-
CAPITAL MARKETS
John Krueger Regional
Fed meeting. Manager
After the Federal Reserve lifted overnight rates and
Louisville Office: 260 Madison Avenue, 5th Floor
Apartment Mortgage Originations maintained a positive economic outlook, long-term interest rates have
By Lender New York, NY 10016
Richard Matricaria Senior Vice President/Division Manager pushed
(212) higher.
430-5100| The 10-Year Treasury yield has quickly traded toward
john.krueger@marcusmillichap.com
9300 Shelbyville Road, Suite 1012
100% the 3.25
New Jersey percent range, which is prompting lenders to pass on the
Office:
Louisville, KY 40222
increased cost to borrowers. However, fierce competition for loans is
Percent of Dollar Volume
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no
representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment
Pittsburgh
growth is calculated based on the last month of the quarter/year. Sales data includes Office:
transactions valued at $1,000,000 and greater unless otherwise noted. This is not intend-
ed to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered
as investment advice. Sean Beuche Regional Manager
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group,
204 Fifth Inc.; Experian;
Avenue, Suite 502 National Association of Realtors; Moody’s Analytics; Real Capital
Analytics; RealPage, Inc.; TWR/Dodge Pipeline; U.S. Census Bureau Pittsburgh, PA 15222
(412) 360-7777 | sean.beuche@marcusmillichap.com