Every month, real estate and rental sites come out with their rent reports in Philly and other major U.S. cities. The collection of headlines read something like this: “Philly’s rental prices jumped 9 percent” or “Rents are on the rise in Philadelphia.”
But parsing through the respective data reveals that the numbers are really all over the place. That’s because many of the reports pull information from their own collection of listings or focus on different types of units, often with an eye on brand new luxury rentals.
So it can be difficult to figure out whether Philly is experiencing an oversupply (Hint: Not quite) or if the rent really is too darn high. To try to come to some sort of conclusion on the state of Philly’s rental market, Curbed Philly talked to some experts and checked out all of the data out there to come up with these five major takeaways.
1. The rental boom is concentrated in Center City
At Center City District’s last count, there were 36 residential and mixed-use development projects underway or proposed for the neighborhood; nearly 4,000 units are expected to deliver by 2019. While that number does include condos, a majority of them are rentals.
“Especially in Center City, we’re seeing more high-end supply deliver all at once than we’ve seen historically,” says JLL senior research analyst Clint Randall.
Still, something is to be said that a few big-time rental developments have been put on the market in the last year, after experiencing lower-than-expected occupancy rates. Dalian on the Park listed one month after opening its doors, and 3601 Market in University City is also up for grabs.
Randall says these leasing issues aren’t across the board for all developments, however. “I think the market’s taking a moment in the sense that we don’t typically have this many new apartment options to choose from,” he says. “So in some cases that’s why we’re seeing a lag in how quickly these buildings are getting leased up.”
2. Yet Philly’s “boom” is peanuts compared to Dallas, NYC
With all of the cranes in the sky, there have been talks of a potential boom-to-bust scenario playing out in Philly. However, JLL Philadelphia recently put this into perspective by comparing the Philadelphia metro’s rental boom to other major U.S. cities.
As this chart dictates, 18,863 units are expected to deliver in the Philly region between 2015 and 2019. That’s less than the national average and very little compared to Dallas metro’s 85,565 units.
That said, talks of an oversaturated rental market may not be as extreme as some suggest, especially as Philly’s population grows (more on that later). Remaining “cautiously optimistic,” Randall says, “We are entering a period of slowing down as far as absorption, but not enough supply to totally overwhelm the market. It can be absorbed, it might just take a little longer.”
3. Average rental rates are growing—slowly
As mentioned earlier, it’s hard to offer a concrete median or average rent in Philly, since so many real estate sites use a wide range of methodologies. For example, Zumper’s June numbers show that a 1-bedroom unit in Philly rents for $1,169 right now. Adobo says it’s more like $1,202 a month, while Apartment List puts it at $957 a month. (Note: Apartment List recently changed to its methodology in attempts to improve accuracy.)
Differing numbers aside, most reports can agree on one thing: Philly’s average rental rate is steadily increasing, but not at the rapid rate that some may gripe about. National data and research firm Axiometrics recently found that rental growth has been less than 1 percent for six of the last seven months in Philly. This chart shows the rollercoaster ride that Philly and the suburbs’ rental markets have experienced over the past two years.
4. Affordability issues are putting pressure on Center City rent growth
Center City’s increasing supply of apartments may be playing a role in the lack of the neighborhood’s rental rate growth, says CoStar senior market analyst Chris LeBarton. In a recent report, LeBarton found that rental rates in Center City have remained somewhat stagnant over the last few quarters.
Specifically, from 2016 to 2017, rents in Center City rose just 1.1 percent. In the Art Museum neighborhood, they decreased ever so slightly by .12 percent.
LeBarton explains, “A lot of this is attributable to new supply pressure, but affordability is also a factor. There are only so many renters who can or will pony up for a $2,000-per month, one-bedroom unit in Center City.”
That may explain why many new developments have started offering concessions to lure potential renters. Hanover North Broad, for example, is offering up to eight weeks of free rent, while the Divine Lorraine is touting 10 percent off monthly rent for the rest of 2017.
5. While Philly rent is low vs. other cities, it’s still high for Philly renters
Compared to other major U.S. cities, Philly’s rent growth has remained relatively stable and still remains one of the more affordable cities, says Apartment List analyst Andrew Woo.
Yet, as Curbed Philly has reported before, a majority of Philly renters are cost-burdened, which is defined as paying more than 30 percent of one’s monthly income on rent. So it could be argued that Philly’s rent isn’t necessarily high, but that its wages are too low. The median income here is $41,233
However, the rental boom, at least in Center City, isn’t unwarranted, says Randall. While the city’s poverty rate is still at 26 percent, he points to recent data that found that the population of Philadelphians earning an annual salary of $100,000 or more has risen 25 percent since 2010—and a good chunk of those six-figure-earning residents live in Greater Center City.
Randall says, “While the rental rates far outpace city-wide income levels, the data around population over the past 10 years in Center City would support the notion that there are way more people living here in higher-income brackets.” In sum, these newcomers can afford these high Center City rents.
When it comes to the future of Philly’s rental market, Center City is where it’s at, and the building boom isn’t likely to bust anytime soon. A lot of people are banking on the delivery of the Comcast Technology Center, which is estimated to bring 2,800 employees to the city. These newcomers are likely to be drawn to these new apartments for a variety of reasons, with location being chief among them.
“People moving to Philadelphia who don’t know the city well often rent first rather than buying and also gravitate toward projects that offer creature comforts and make adjustment easy,” Randall says. “I think that supports this housing pipe line.”
Still, Philly is in a unique position compared to other major U.S. metros in that it remains a buyers’ city, where a monthly mortgage is often cheaper than a monthly rent in Center City (which is about $1,950). That means the rental market isn’t just competing with itself, but with the housing market, too.
Here’s an easy answer to that perpetual buy versus rent question, if location is important to you: Rent in Center City and buy anywhere else.