Though some are resistant to using the term “oversupply” to describe the ongoing influx of apartments in Philadelphia, it is no secret that construction costs restrict all new-construction apartments to charging rents at or near the top of the market.
One of Philadelphia’s biggest advantages in drawing millennials — it is second in the country in terms of millennial growth, according to Longfellow Real Estate Partners Managing Director Jessica Brock — is its affordability compared to New York and Washington, D.C. But newly built apartments in Philly are targeting rents at an average of $3.50/SF, according to JLL Research Director Lauren Gilchrist, or $3,500/month for a 1K SF apartment. For most Philly renters, that is an astronomical figure.
“You can go to tons of places in nice areas that are considerably cheaper than that, so I’m not sure who will be paying those rents besides professionals landing in Philadelphia for the first time or empty nesters coming into the city,” Gilchrist said.
The lease-up numbers bear that out. Available apartments costing $3.50/SF are about 60% occupied, according to Gilchrist, compared to 80% of apartments between $3 and $3.50/SF. Apartments that rent between $2 and $3/SF are over 90% occupied.
The continuing difficulty of buying a house, even for those making a decent wage, means that millennials are likely to stay in the renting market for longer, as their wages figure to increase eventually. Because of that, and landlords’ willingness to offer generous concessions, Gilchrist has no long-term concerns about multifamily absorption in the city.