MARKET SNAPSHOT: Top-Tier Assets in Philadelphia Spark Investor Interest

Philadelphia—During the first half of the year, interest in Class A properties in the Philadelphia metro increased, according to Marcus & Millichap’s third quarter report.

Velocity increased 65 percent over the past 12 months, with a 37 percent increase in the number of properties with fewer than 100 units changing hands.

Aggressive pricing pushed down cap rates to less than 6 percent, which has, in turn, forced many investors to look further down the quality scale. Consequently, Class B assets in A locations have seen cap rates fall about 75 bps, to the low- to mid-6-percent range.

The median price per unit decreased about 2 percent, to $80,400. Prices for larger deals varied, with distressed assets selling for about $35,000 per unit and better-quality assets transacting at unit prices of $100,000 or more.

Asking and effective rents increased 0.5 percent and 0.6 percent, respectively, in the second quarter. So far this year, asking and effective rents have risen 1 percent and 1.2 percent, respectively.

In the Pennsylvania submarkets, effective rents rose 1.3 percent from the year prior, while effective rents in South Jersey rose 1 percent over the past six months.

For the year’s entirety, Marcus & Millichap projects asking rents to increase 3 percent, with a 3.5 percent increase in effective rents rents.

Metro-wide vacancy declined 30 bps in the second quarter, to 4.7 percent. Thus far this year, net absorption of 1,700 units has reduced the vacancy rate 80 bps, according to Marcus & Millichap.

The Somerton/Bustleton submarket had the lowest vacancy rate (2.2 percent) as of the third quarter, followed by Foxchase/Lawndale (2.5 percent) and Upper Bucks County (2.6 percent). The highest vacancies were seen in Cherry Hill/Eversham (9.6 percent), Norristown/Plymouth (9.7 percent) and Bala Cynwyd (10 percent). Center City was in about the middle of the pack, at 4.5 percent, but it also, unsurprisingly, had the highest effective rents ($1,569 per month, compared to the $716 monthly rents in Foxchase/Lawndale.)

No new rentals were delivered in the first half of 2011. For the balance of the year, 500 units are slated for delivery, with the bulk consisting of the 317-unit Abitare in Camden County. The planning pipeline, meanwhile, consists of 3,800 units.