Absorption is up in all submarkets within the City of Philadelphia besides Center City. Rent growth remains strong within the metro area; however, with new inventory coming to the City of Philadelphia, rent growth will be impacted. As for now, growth remains positive, except West Philadelphia where it is slightly negative. Rent growth in the City of Philadelphia is still outperforming the five-year average even though the rate is trailing behind the suburbs. Meanwhile, the development pipeline in the city is starting to diversify away from Center City into North and West Philadelphia. We expect the pipeline diversification to continue for years to come.

THIRD QUARTER 2019 HIGHLIGHTS

The metro area Class A stabilized vacancy rate increased by 80 basis points from a year ago to 3.7% at second quarter 2019. Suburban geographic areas experienced an increase in vacancy.

- Stabilized vacancy in Southern New Jersey decreased by 120 basis points over the year to 1.2%.

- Suburban Pennsylvania stabilized vacancy increased by 20 basis points from September 2018 to 2.9%.

- Stabilized vacancy increased by 40 basis points in the City of Philadelphia to 5.1%.

Rent increases over the year were consistent in the suburbs while growth in the city was not as strong. Here are the effective rent changes by sub-area for the 12-month period ending September 2019:

- Southern New Jersey up 3.5%

- Suburban Pennsylvania up 3.5%

- City of Philadelphia up 2.2%

Metro-wide, effective rents rose 3.0% in the 12-month period ending September 2019. Average metro-wide effective rents at third quarter 2019 are $1,975, or $2.14 per SF. Effective rents average $2,297 ($2.69 per SF) for high-rise product in the City of Philadelphia and $1,782 ($1.80 per SF) for low- and mid-rise product in the suburbs.

Delta Associates, the research affiliate of Transwestern, is a firm of experienced professionals which has been providing consulting and subscription data services to the commercial real estate industry for over 35years.