Center City apartment boom creates changes in landscape

2116 Chestnut on Rittenhouse. The number of young professionals in Center City is up.
2116 Chestnut on Rittenhouse. The number of young professionals in Center City is up. (CHARLES FOX / Staff Photographer)
Posted: March 21, 2014

PHILADELPHIA A record-breaking number of new apartments hit the Center City market in 2013, according to a report released Wednesday, reflecting a national trend as home buying has tightened and rental demand has risen in recent years.

The Center City District said more than 1,700 new apartment units were added downtown in 2013 - the largest annual increase since the business-improvement district began tracking construction trends in 1998.

The next-highest year, 2006, saw just 800 new apartments, while all other years yielded significantly smaller numbers than that, according to data in a CCD report titled "Housing Resurgence."

The group said that another 1,700 rental units now under construction would be added over the next two years to the area defined by Girard Avenue, Tasker Street, and the city's two rivers - but questioned whether there would be sufficient demand to meet the ongoing surge by developers, despite a recent in-migration of well-to-do residents.

"That's the obvious question on people's minds," said Paul R. Levy, president and chief executive of Center City District, at a morning news conference.

The report said that the next two years - and the trajectory of rents, ultimately - would reveal whether supply was outstripping demand.

The rental-market spike was not an isolated phenomenon. Center City also recorded a steady increase in price and volume of home sales during the same period - a trend seen nationally.

The rental surge, however, reflects a changed landscape for U.S. housing. Tighter lending standards since the financial crash of 2008 have reduced the pace of home purchases, fueling a spike in rental demand that investors have seized upon.

Apartments and even houses have been snapped up over the last few years across the country by investors intent on converting them to rentals or simply capitalizing on the high returns of owning apartments as rents rise.

This has played out in downtown Philadelphia, Levy said, though a surge of office development, he said, would inspire a bit more enthusiasm. That would signal thriving employment-sector growth in a city that still lags others in job creation.

"If we had more robust job growth," Levy said, "we'd have people building office buildings who are building apartments."

Rental rates did not uniformly increase as new units came online in Center City, suggesting that the market had perhaps flattened, even as additional units were in the pipeline.

Rents for one-bedroom apartments in larger buildings were flat or declined slightly, while newer apartments commanded above-average rates.

"What this suggests is that, in the face of newer supply, with more up-to-date amenities, landlords in larger existing buildings may be adjusting asking rents downward to hold their tenants," the report said.

Buildings with fewer than 50 apartments were an exception: Asking rents for those one-bedroom apartments rose 9.1 percent from 2012 to 2013, CCD found.

Census data have shown a sharp rise in the number of young professionals living in Center City and its surrounding neighborhoods over the last roughly 15 years, a migration that has helped boost downtown's once-declining population. But retaining them and their children to support continued housing growth is not assured.

There has been an increase in the number of children under the age of 5 living in and around Center City since 2000, CCD found, but a decline in the percentage of 5- to 17-year-olds from 2010 to 2012, potentially reflecting concerns about the city's beleaguered school system.

Job growth in Philadelphia overall has significantly lagged that of other cities, too. And so, CCD raised a question about whether, even with Comcast Corp.'s planned new skyscraper, there was sufficient job growth to satisfy continued housing-market growth.

"Restoring funding, confidence, and effective management in Philadelphia's public schools are essential," the report declared, while also calling for competitive tax policies to spur employment growth.


mpanaritis@phillynews.com

215-854-2431

@Panaritism

 

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