t e 5 · delta’s 3rd annual philadelphia apartment market event was held on april 21, 2015 at the...

Third QuarTer 2015

DELTA ASSOCIATES

PHILADELPHIA

CLASS A APARTMENT

MARKET REPORT

SPONSORED BY

Third QuarTer 2015

DELTA ASSOCIATES

PHILADELPHIA

CLASS A APARTMENT

MARKET REPORT

SPONSORED BY

By Subscription Only

Prepared For Exclusive Use of SubscribersOn September 30, 2015

© Delta Associates, 2015. All rights reserved.You may neither copy nor disseminate this report. If quoted, proper attribution is required.

Please see www.DeltaAssociates.com for more information on our reports.

www.DeltaAssociates.com

DELTA ASSOCIATES | PHILADELPHIA CLASS A APArTmEnT mArkET rEPOrT | THIrD QuArTEr 2015 | nOT fOr rEDISTrIbuTIOn

1. STATE OF THE ECONOMY

The National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The Philadelphia Area Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2. STATE OF THE PHILADELPHIA CLASS A APARTMENT MARKET

State of the Philadelphia Class A Apartment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Table 2 .1: NCREIF Return Index for Apartment Properties U .S . Apartment Income vs . Pricing . . . . . . . . . . . 23

3. PHILADELPHIA STATISTICAL REPORT

MarkeT indicaTors

Table 3 .1: Philadelphia Metro Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Table 3 .2: Suburban Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Table 3 .3: Southern New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Table 3 .4: City of Philadelphia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

absorpTion suMMary

Table 3 .5: New, Actively Marketing Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table 3 .6: Recently Stabilized Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

ciTy of philadelphia new consTrucTion pipeline

Map 3 .1: Apartment Projects Under Construction and/or Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Table 3 .7: Apartment Projects Under Construction and/or Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Table 3 .8: Planned Apartment Projects That Could be Delivered within 36 Months . . . . . . . . . . . . . . . . . . . . 35

Table 3 .9: Longer Term Planned Apartment Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

MulTifaMily building sales

Table 3 .10: 2014 Apartment Building Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Table 3 .11: 2015 Through June Apartment Building Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

4. EXPLANATION OF GEOGRAPHIC COVERAGE AND METHODOLOGY

Methodology and Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Philadelphia Area Apartment Submarket Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Table of conTenTs


MulTifaMily TeaM

Although the information contained herein is based on sources which Delta Associates (DA) believe to be reliable, DA makes no representation or warranty that such information is accurate or complete. All prices, yields, analyses, computations, and opinions expressed are subject to change without notice. Under no circumstances should any such information be considered representations or warranties of DA of any kind. Any such information may be based on assumptions which may or may not be accurate, and any such assumption may differ from actual results. This report should not be considered investment advice.

PLEASE NOTE NEW ADDRESS/PHONES:1717 k sTreeT, nw, suiTe 1010, washingTon, dc 20006p: 202.778.3100 | f: 202.778.3101

MuLTIFAMILY PRACTICE TEAM

Senior Vice President, Multifamily Practice Director William E . L . Rich 202-778-3121

Senior Associate Justin Donaldson

Senior Associate Luke Gelber

Senior Associate Rachelle Sarmiento

Associate Kayla Bruun

Associate Dylan Jones

ediTor and chief execuTive: David Weisel, CRE 202-778-3119

of counsel, econoMics: Dr . Stephen S . Fuller 703-993-3186


available reporTs froM delTa associaTes

washingTon MeTropoliTan area class b aparTMenT MarkeT reporT

A comprehensive report on apartment market conditions, focusing on the following indicators:

• Analysis of the national and regional economies

• Key market statistics for 30 submarkets and regional totals for:

• Current rents and rent change

• Vacancy

• Concessions

• Renovation information including budget and timetable

• Class B apartment building sales

Additional indicators analyzed in the Fourth Quarter report:

• Fourth Quarter Report: Market-maker survey on capitalization rates, investment posture, thoughts on the economy, and more .

washingTon/balTiMore condoMiniuM MarkeT reporTMarket Coverage: Washington Metro and Baltimore Metro

A comprehensive report on condominium market conditions, focusing on the following indicators:


• Regional apartment market summary


• Sales trends for new and resale condos

• Historic condominium price changes

• Pipeline trends

• Additional data include:

• Absorption pace

• Multifamily building and land sales

Additional indicators analyzed in the Third Quarter report:

• Third Quarter Report: Comparison of median condo

expenses in the Washington MSA and Mid-Atlantic region

MuLTIFAMILY MARKET

Mid-aTlanTic class a aparTMenT MarkeT reporT Market Coverage: Washington Metro, Baltimore Metro, Philadelphia Metro

A comprehensive report on apartment market conditions, focusing on the following indicators:


• Regional condo market summary



• Vacancy

• Concessions

• Class A apartment building sales

Additional indicators analyzed in the Third Quarter and Fourth Quarter reports:

• Third Quarter Report: Comparison of median revenue,

expense, and net operating income data for the USA

and Washington MSA .

• Fourth Quarter Report: Market-maker survey on

capitalization rates, hard and soft development costs,

investment posture, thoughts on the economy, and more


available reporTs froM delTa associaTes

FREE REPORTS

Delta Associates publishes free reports on the economy and real estate market, including:

• Washington, DC Metro Retail Outlook (quarterly)

• Washington Metro Area Housing Outlook (quarterly)

• Understanding the Economy (periodic)

• Washington TrendLines (annual)

Delta Associates also publishes occasional white papers on areas of interest . To view sample reports or to subscribe,

please visit www .DeltaAssociates .com .

COMMERCIAL MARKET

washingTon/balTiMore office MarkeT reporTMarket Coverage: Washington Metro and Baltimore Metro

A comprehensive quarterly report on office market conditions, focusing on the following indicators:• Analysis of the national and regional economies

• Metro-level and substate area (Northern Virginia, Suburban

Maryland, District of Columbia) office market summaries

• Key market statistics (All Space and Class A Space) for all

major submarkets and regional totals for:

• Net absorption

• Vacancy

• Construction

• Additional data include:

• Supply/demand analysis

• Rental rate and tenant improvements data

• Average lease terms and operating expenses

• Delivered, proposed, and planned SF

• Building and land sales

• Investment returns

• Cap rate trends

MuLTIFAMILY MARKET (CONTINuED)

philadelphia aparTMenT MarkeT reporT

Market Coverage: Philadelphia Metro

An executive summary-style report on apartment market conditions, focusing on the following indicators:

• Analysis of the regional economy

• Regional apartment market summary

• Regional apartment building sales

• Key market statistics for all major submarkets and

regional totals for:


• Vacancy

• Concessions

Additional indicators analyzed in the Fourth Quarter report:

• Market-maker survey on capitalization rates, hard & soft

development costs, investment posture, thoughts on the

economy, and more

• Development economics

Special supplements to the report have included:

• Analysis of Federal bailout/stimulus spending

• Impact of stimulus spending on office leasing

• Office rent equilibrium zone study

DELTA A SSOCIATESCelebrating 35 years of research, advisory, and valuation services.

1717 K STREET, NW, SUITE 1010 | WASHINGTON, DC 20006P: 202.778.3100 | WWW.DELTAASSOCIATES.COM |

DAVID WEISEL, CRE Chief Executive

[email protected] | 202.778.3119

JENNIFER GLASER Subscriptions

[email protected] | 202.778.3106

CONTACT US

A MESSAGE FROM THE CEO ON DELTA A SSOCIATES’ 35TH YE AR

Clients, Colleagues, Alumni, and Friends of Delta A ssociates:

As Delta Associates marks its 35th year, it is worth taking a moment to review the breadth and depth of accomplishments and ongoing activities of this remarkable organization:

• Over 100 separate consulting assignments each year, for a wide variety of clients including developers, pension funds, banks, not-for-profit organizations, and state and local government agencies.

• While our activity is concentrated in the Mid-Atlantic, we work with clients all over the U.S. Recent assignments have taken us to the Carolinas, Texas, Tennessee, Connecticut, California, Florida, and Alabama.

• Strategic briefings to key decision makers on economic and real estate market issues.• Delta’s quarterly subscription reports continue to be relied upon by the real estate community for their detailed survey

data and insightful analysis.• Free webinars and complimentary reports provide a concise review of the regional apartment market.• Washington/Baltimore Multifamily Market Overview and Awards for Excellence; 2015 will be the 19th year.• TrendLines, the Washington area’s premier overview of the economy and commercial real estate market, attended by over

1,000 annually and approaching the 19th year this coming February 2016.

I consider myself fortunate to work with an exceptional group of professionals. If we had an aggregate team resume, it would show a long list of education disciplines and job experience credentials. This diverse palette of training and skills allows Delta to apply a broad perspective to our client assignments and publications.

35 years is a long time, especially in the world of real estate consulting firms. Since Delta’s first year, the Dow Jones Industrial Average increased 22-fold, and the inventory of all office space in the Washington area grew by a factor of four. Over the course of 35 years, Delta has:

• Accumulated a contact list of over 6,600 individuals.• Grown our Class A apartment survey to over 227,000 units (from roughly 37,000 in 1996)• Hosted (with our co-sponsors) over 18,000 guests at TrendLines events in Washington, Houston, Dallas Chicago, New York.• Performed valuations on over $275 billion of real estate.

I encourage you to visit our website at www.DeltaAssociates.com to get a sense of our firm. Call or email me or anyone on our team to explore how we can assist with your real estate and economic research and advisory needs.

Regards,

mailto:David.Weisel%40DeltaAssociates.com?subject=

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At Kettler Management, we create exceptional value for our partners by ensuring exceptional communities for our residents. Everything we do begins with our company’s core values.

COMMUNITY BUILDINGThrough strong relationships with all stakeholders, we strive to improve the broader community.

VALUE CREATIONOur team members are encouraged to apply their skills and enhance the value of everything we do.

DISTINCTIVE DESIGNWe use innovative and sustainable designs and practices that are recognized as the best in the industry.

TEAM MEMBER ENGAGEMENTWe foster a positive work environment that rewards collaboration and encourages professional growth.

INTEGRITY IN ALL WE DOOur standards of business demand high ethics, total honesty and disciplined work.

EXCEPTIONAL COMMUNITIES. UNBEATABLE RESULTS.

Kettler Management Is Leading the Way.

Learn More at KettlerLiving.com.

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delTa news

MEDIA

delTa insighTs: each week in The washingTon business Journal

See Delta Associates’ weekly feature in the Washington Business Journal . In each release of Delta Insights, the WBJ highlights key statistics

and analysis from Delta that bring the local commercial real estate market into perspective .

PRESENTATIONS AND EVENTS

washingTon/balTiMore MulTifaMily presenTaTion and awards

The 19th annual Washington/Baltimore Multifamily Presentation and Awards will be held on October 8, 2015 at the Mayflower Hotel in

Washington, DC . Delta’s CEO, David Weisel and Multifamily Practice Director, William Rich, will present an Economic and Real Estate

Market Overview prior to the awards ceremony . To see the list of award winners, or to download the market presentation, please visit

the Multifamily Awards page on our website following the event .

washingTon Trendlines

The 19th annual Washington TrendLines® event is planned for February 4, 2016 at the Ronald Reagan Building and International

Trade Center in Washington, DC . TrendLines® is an invitation-only, annual presentation of market conditions with an outlook

for investment and development opportunities in the period ahead . The event is co-sponsored by PNC Bank, Baker Tilly, and

Transwestern . For an invitation to the event, or to learn more about our TrendLines® presentations and reports, please contact

Jennifer Glaser or visit TrendLinesDC .com .

washingTon area aparTMenT webinars

On July 1, 2015, Delta Associates hosted our Second Quarter 2015 webinar on the Washington apartment market . This webinar series is

sponsored by the ROSS Companies . At each webinar, William Rich, director of Delta Associates’ multifamily practice, provides a short

regional economic overview followed by a comprehensive review of the Washington apartment market . The slide show from each

webinar is available to registrants and to Delta’s clients . For more information, please contact Rachelle Sarmiento .

philadelphia aparTMenT MarkeT presenTaTion and awards

Delta’s 3rd annual Philadelphia Apartment Market event was held on April 21, 2015 at the Four Seasons Hotel in Philadelphia, PA .

The event included a Real Estate Market and Economic Overview presentation and awards for excellence and achievement in the

Philadelphia multifamily industry . This event was co-sponsored by The Bozzuto Group . To download the market presentation from this

event, please visit our website . For more information, please contact Jennifer Glaser .

http://www.bizjournals.com/washington/

https://www.deltaassociates.com/event/46/19th-annual-mid-atlantic-multifamily-awards

http://www.multifamilydc.com/

https://www.deltaassociates.com/event/52/annual-washington-trendlines-2016


http://www.transwestern.net/TrendLines/Mid-Atlantic/Pages/default.aspx

http://ross-companies.com

mailto:Rachelle.Sarmiento%40DeltaAssociates.com?subject=

https://www.deltaassociates.com/event/34/3rd-annual-philadelphia-apartment-market-overview--awards-for-excellence

http://www.bozzuto.com/

www.DeltaAssociates.com



delTa news

recenT speeches and presenTaTions given by delTa execuTives

• American Planning Association, Virginia Chapter Annual Conference: 7 .21 .15

• Delta’s Second Quarter 2015 Apartment Webinar: 7 .1 .15

• Transwestern’s Washington Area Multifamily Market Investor Luncheon: 6 .3 .15

• Delta’s 3rd Annual Philadelphia Apartment Market Overview & Awards of Excellence: 4 .21 .15

• George Mason University Northern Virginia Apartment Summit: 3 .17 .15

• Metropolitan Washington Council of Governments: 3 .10 .15

• International Council of Shopping Centers (ICSC) Mid-Atlantic: 2 .17 .15

• Delta’s 18th Annual Washington TrendLines Event: 2 .5 .15

• Bisnow’s National Multifamily East Conference: 11 .24 .14

upcoMing speeches and presenTaTions by delTa execuTives

• Delta’s 19th Annual Mid-Atlantic Multifamily Awards: 10 .8 .15

• Urban Land Institute DC Metro Office Market Panel: 11 .4 .15

• Delta’s 19th Annual Washington TrendLines Event: 2 .4 .16

PubLICATIONS

undersTanding The econoMy

Delta publishes an electronic newsletter called Understanding the Economy on changes in the national economy and their relevance to

commercial real estate . This newsletter is available free of charge via e-mail, and the latest issue is available here . Please subscribe

to the report via our website .

washingTon area reTail ouTlook

The Washington Area Retail Outlook is a quarterly report in which Delta provides a quantitative and qualitative assessment of the

Washington area retail market, with a focus on grocery-anchored shopping centers . Information is included on vacancy rates, rents,

investment sales, projects of interest, and key trends in the retail market . The report is co-sponsored by The Rappaport Companies

and is available free of charge via e-mail . The latest issue of this report was released in April 2015 . The next issue of the report will be

released in July 2015 . Please subscribe to the report via our website .

washingTon area housing ouTlook

The Washington Area Housing Outlook is a quarterly report in which Delta provides an assessment of the region’s single-family housing

market, including data on pricing, sales volume, and days on market . The report is co-sponsored by George Mason University’s Center

for Real Estate Entrepreneurship and is available free of charge via e-mail . The latest issue of this report was released in April 2015 . The

next issue of the report will be released in July 2015 . Please subscribe to the report via our website .

https://www.deltaassociates.com/event/50/american-planning-association-virginia-chapter-annual-conference

https://www.deltaassociates.com/event/47/delta-associates-washington-area-apartment-market-webinar---july

https://www.deltaassociates.com/event/48/washington-area-multifamily-market-investor-luncheon

https://www.deltaassociates.com/event/34/3rd-annual-philadelphia-apartment-market-overview--awards-for-excellence

https://www.deltaassociates.com/event/42/2015-northern-virginia-apartment-summit

https://www.deltaassociates.com/event/45/cooperative-forecasting-and-data-subcommittee-meeting

https://www.deltaassociates.com/event/44/icsc-mid-atlantic-conference-

https://www.deltaassociates.com/event/38/washington-trendlines-2015

https://www.deltaassociates.com/event/24/bisnows-multifamily-east

https://www.deltaassociates.com/event/46/19th-annual-mid-atlantic-multifamily-awards

https://www.deltaassociates.com/event/55/urban-land-institute-dc-metro-office-market-panel

https://www.deltaassociates.com/event/52/annual-washington-trendlines-2016

https://www.deltaassociates.com/reports-and-publications

https://www.deltaassociates.com/subscriptions

http://www.rappaportco.com

https://www.deltaassociates.com/

http://business.gmu.edu/realestate/

http://business.gmu.edu/realestate/

https://www.deltaassociates.com/

1sTaTe of

The econoMy

DELTA ASSOCIATES | PHILADELPHIA CLASS A APArTmEnT mArkET rEPOrT | THIrD QuArTEr 2015 | nOT fOr rEDISTrIbuTIOn 3

GDP REbOuNDS AFTER DISAPPOINTING FIRST QuARTER; STRONG JOb GROWTH CONTINuES

The naTional

econoMyTHIRD QuARTER 2015

The national economy responded positively after a sluggish start

to 2015, with 2nd quarter GDP growth at 2 .3%; the 1st quarter’s

growth rate was also revised higher to 0 .6% . Economic growth

was primarily driven by increased consumer spending, though

lackluster business and government spending limited economic

expansion . Job growth has been strong as well, with the economy

adding 2 .95 million new payroll jobs over the 12 months ending

July 2015 . The private sector provided the vast majority of new

jobs, mainly in the Professional/Business Services, Education/

Health Services, Leisure/Hospitality, and Retail Trade sectors . This

job growth pushed the national unemployment rate down to 5 .3%

as of July 2015, in spite of an increasing labor force participation

rate . Unfortunately, wage growth has remained lackluster, but

this should change over the next couple of years, as increased

hiring forces businesses to compete for top talent .

Another encouraging sign for the national economy is continued

growth in household net wealth and revolving credit . These

trends reflect the upside of the Fed’s accommodative monetary

policy, as lower rates encourage consumers to invest their cash

in riskier assets and reach for their credit cards . After widespread

speculation that it would increase the Federal Funds Rate during

the 3rd quarter, the Fed ultimately decided to leave it unchanged

at its September 2015 meeting . A rate increase still remains

probable in the near future, though not necessarily before the

end of 2015 . Should this happen, it would likely slow consumer

spending and revolving credit somewhat .

Moving forward, the U .S . economy is poised to continue gaining

strength through the remainder of 2015 and beyond . Major

economic indicators are moving in a positive direction, and the

domestic economy does not appear to have been damaged by the

crash of Chinese markets in August or other recent shocks to the

global economy .

CHANGE IN U.S . HOUSEHOLD NET WORTH United States

Source: Federal Reserve Board, Delta Associates; September 2015.

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

12

-MO

NT

H P

ER

CE

NTA

GE

C

HA

NG

E

Cumulative Annual Growth Rate (CAGR) = 3.6%

* As of 1st Quarter 2015.

REVOLVING CREDIT United States

Source: Federal Reserve Board, Delta Associates; September 2015.

-15%

-10%

-5%

0%

5%

10%

15%

1999 2001 2003 2005 2007 2009 2011 2013 2015*

12

-MO

NT

H P

ER

CE

NTA

GE

C

HA

NG

E

*12-month percentage change through June 2015. Note: data are not seasonally adjusted.

MOVING FORWARD, THE ECONOMY IS POISED TO CONTINuE GAINING STRENGTH THROuGH THE REMAINDER OF 2015 AND bEYOND.

DELTA ASSOCIATES | PHILADELPHIA CLASS A APArTmEnT mArkET rEPOrT | THIrD QuArTEr 2015 | nOT fOr rEDISTrIbuTIOn4

SPONSORED BY KETTLERThe naTional econoMy

PAYROLL JOB GROWTH United States | 12 Months Ending July 2015

-100,000 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000

Federal Government

Information

State and Local Government

Other Services

Wholesale Trade

Transportation/Utilities

Manufacturing

Construction/Mining

Financial Activities

Retail Trade

Leisure/Hospitality

Education/Health

Professional/Business Services

J O B C H A N G E

Source: Bureau of Labor Statistics, Delta Associates; September 2015. Note: Data are not seasonally adjusted.

Now, for a look at major U.S. economic indicators:

payroll Jobs

Job growth has been strong, with the national economy adding

2 .95 million new payroll jobs during the 12 months ending July

2015 . The private sector again accounted for the overwhelming

majority of net additions; the public sector added just 85,000

positions during this period . Month-to-month gains (seasonally

adjusted) from January to July 2015 averaged approximately

211,000 jobs per month:

• April 2015: 187,000

• May 2015: 260,000

• June 2015: 231,000 (Preliminary)

• July 2015: 215,000 (Preliminary)

Public sector hiring has been rebounding this year, particularly

in the state and local government subsectors . At the Federal

level, the workforce is no longer shrinking, but job growth has

been limited . Following 47 consecutive months of year-over-

year declines, Federal employment has actually increased in

each month since January, albeit modestly .

Overall, the public sector has now added jobs (year-over-year)

for 14 consecutive months after consistently shedding jobs over

the previous several years . Federal employment is expected

to remain stable in the next couple of years, as evidenced by

President Obama’s FY 2016 budget proposal, which includes a

$74 billion increase in discretionary investments over what is

allowed under current spending caps . How close this proposal

will resemble the approved budget is unclear, but it signals that

there is a chance the Federal workforce will see an easing of

budget constraints for the first time since 2011 .

During the 12-month period ending July 2015 the top four sectors

in job gains were Professional/Business Services, Education/

Health Services, Leisure/Hospitality, and Retail Trade . These

four sectors alone added about 2 .0 million new jobs, accounting

for 69% of net job growth . Job gains were positive across all

major sectors, and eight of the 13 sectors added at least 148,000

payroll jobs over the year . A healthy Professional and Business

Services sector is especially important for commercial real

estate investors, since these jobs typically boost both retail

spending and office demand .

PAYROLL JOB GROWTH United States | Year-Over-Year

Source: Bureau of Labor Statistics, Delta Associates; September 2015.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Aug. 14 Sep. 14 Oct. 14 Nov. 14 Dec. 14 Jan. 15 Feb. 15 Mar. 15 Apr. 15 May 15 June 15 July 15

Private Sector

Public Sector

TH

OU

SA

ND

S O

F N

EW

PA

YR

OLL

JO

BS

Note: Data are not seasonally adjusted.

5DELTA ASSOCIATES | PHILADELPHIA CLASS A APArTmEnT mArkET rEPOrT | THIrD QuArTEr 2015 | nOT fOr rEDISTrIbuTIOn

SPOnSOrED bY kETTLErThe naTional econoMy

INIT IAL UNEMPLOYMENT CLAIMS United States | Four-Week Moving Average

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

Peak in Initial Unemployment Claims (not shown) (Week of 3/28/09) = 659,250

15-Year Average = 378,674

INIT

IAL

UN

EM

PLO

YM

EN

T C

LAIM

S

Source: Federal Reserve Bank of St. Louis, Delta Associates; September 2015. Note: Data are seasonally adjusted.

(Week of 08/15/15) = 271,500

UNEMPLOYMENT RATE United States

0%

2%

4%

6%

8%

10%

12%

80 85 90 95 00 05 10 15*

Note: Through July 2015; seasonally adjusted; shaded bars represent recessions. Source: Bureau of Labor Statistics, Delta Associates; September 2015.

U.S

. U

NE

MP

LOY

ME

NT

RA

TE

0%

1%

2%

3%

4%

5%

2007* 2008 2009 2010 2011 2012 2013 2014 2015

AVERAGE HOURLY EARNINGS 12-Month Percentage Growth | 2007- July 2015

* Data available starting March 2007 Source: Bureau of Labor Statistics, Delta Associates; September 2015.

Average 2007-2008 = 3.3%

Average 2009-2014 = 2.1%

12

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NTA

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GR

OW

TH

labor force and wages

Overall, initial unemployment claims have decreased steadily

since their peak in March 2009 . As of mid-August 2015 initial claims

stood at 271,500, based on a four-week seasonally-adjusted moving

average . This is 9 .8% below the same week in 2014 and 28 .3% below

the 15-year average of 378,674 . We expect unemployment claims

to continue to steadily decrease through the rest of the year and

beyond, as the national economic expansion continues .

The unemployment rate (seasonally adjusted) declined to 5 .3%

as of July 2015, down from 5 .6% one year earlier . This decline

occurred despite the labor force increasing 2 .1% during the same

time period . The resurgence of the labor force after a long period

of decline in participation is very important, as it illustrates

growing confidence among job seekers that they will actually

secure employment . The unemployment rate should continue to

decline through the rest of 2015 as the economy rebounds, but

at a slower rate as more people enter (or re-enter) the workforce .

An ongoing area of concern for the national economy is the national

average hourly wage, which has increased at a slow rate since the

end of the recession . In July 2015, the average hourly wage saw a 2 .1%

increase from one year prior . By comparison, in 2007—prior to the

recession—the average hourly wage increased by 3 .0% each month

on a year-over-year basis . This is a pressing issue for many aspects

of the economy, including price levels and consumption patterns .

There are multiple competing theories that may explain the weak

wage growth . One is that slow growth in wages is an indicator

that the jobs being created are in lower-paying industries . Even

if people are finding jobs, they are likely to be underemployed,

meaning job seekers are taking jobs that are below the education

and experience levels they have achieved . Another theory has to

do with the changing composition of the workforce . The average

age of workers has remained relatively constant over the last

few years, which indicates that younger workers are entering the

workforce at a faster pace than other age cohorts . These younger

workers tend to start with lower salaries, which may partly explain

depressed average wage growth . A third theory is that, due to slow

moving wage adjustments, known as “sticky” wages, firms could

not adequately reduce wages to equalize with the decrease in

overall demand during the Great Recession, and we are witnessing

a slow correction in wages or “pent-up wage cuts” as workers

become more accepting of reduced nominal wages . Whatever the

reason for the poor performance in wage growth, this metric is

likely to improve in the next few years as a low unemployment

rate will cause firms to compete for talent .



On a brighter note, while workers are not receiving a

significant increase in wages on an hourly basis, they are

successfully finding more full-time jobs . As recently as 2011,

the U .S . economy was adding more part-time than full-time

jobs . Since that time, though, the gap between full-time and

part-time employment growth has been gradually increasing .

Though the gap closed slightly in April, as of July 2015 the gap

between full-time and part-time employment growth is at its

highest level since before the recession . Full-time positions

translate to more hours worked and higher paychecks . Recent

trends in full-time employment seem to also indicate that any

negative effects of Obamacare on full-time hiring have been

blunted by the need for more full-time workers .

Yet another positive sign is the declining job availability

ratio, which measures the relationship between the number

of potential applicants and the number of jobs available . The

national job availability ratio was 1 .49 as of June 2015, down

from 1 .58 in June 2014 . Even Construction, the most troubled

sector by this measure, saw its job availability ratio decline

from 7 .0 in late 2014 to 4 .9 by June 2015 . The Professional/

Business Services sector had the greatest number of job

openings as of June 2015, with 967,000 jobs . The Education/

Health Services sector is the tightest, with a potential

job applicant to job opening ratio at 1 .0, the lowest of all

employment sectors .

gross doMesTic producT (gdp)

The estimate of real GDP growth for the 2nd quarter of 2015

came in at 2 .3%, just slightly below the 2 .4% annual growth

rate for 2014 . An even better piece of news was the updated

1st quarter GDP growth figure, which was revised from the

previous estimate of -0 .7% to +0 .6% . Consumer spending in the

2nd quarter grew more rapidly than predicted, and prices also

increased . The economy shook off many of the weaknesses

in the 1st quarter including harsh weather, declining oil

prices, and accelerated appreciation of the dollar, which sent

net exports plunging . The improving job market is one of the

primary drivers of economic growth, although business and

government spending has remained subdued .

The most recent report from the Federal Reserve Bank of

Philadelphia’s Survey of Professional Forecasters projects real

GDP growth to be 3 .1% in the 3rd quarter and 2 .9% in the 4th

quarter, for an overall growth rate of 2 .4% in 2015 . Looking

further ahead, real GDP is predicted to average 2 .8% in 2016,

2 .8% in 2017, and 2 .5% in 2018 .

NUMBER OF UNEMP LOYED VS. JOB OP ENINGS 12-Month Average Ending June 2015

0 200 400 600 800 1,000 1,200 1,400

Wholesale and retail trade

Leisure and hospitality

Professional and business services

Education and health services

Manufacturing

Construction

Government

Other services

Transportation and utilities

Financial activities

Information

Mining

Number of Job Openings

Number of Unemployed

T H O U S A N D S O F J O B S

Note: Based on 12-month trailing average. Data are not seasonally adjusted. Source: Bureau of Labor Statistics, Delta Associates; September 2015.

GDP PERCENT CHANGE United States

Source: Bureau of Economic Analysis, Delta Associates; September 2015. Note: Quarters are seasonally adjusted at annual rates.

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Q311

Q112

Q312

Q113

Q313

Q114

Q314

Q115

AN

NU

AL

GD

P C

HA

NG

E I

N 2

00

9

CO

NS

TAN

T D

OLL

AR

S

20-Year Average = 2.4%

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

2010

2011

2012

2013

2014

2015

Full-Time Part-Time

Source: Bureau of Labor Statistics, Delta Associates; September 2015. Note: Data are seasonally adjusted.

EMPLOYMENT LEVELS BY JOB STATUS United States | 2010 – July 2015

12

-Mo

nth

Ne

t C

ha

ng

e i

n

Em

plo

ym

en

t (T

ho

usa

nd

s)



AN N UAL C HAN G E IN EX ISTIN G HOME SALE PRIC ES United States

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 2013 2014 2015PE

RC

EN

T C

HA

NG

E F

OR

ME

DIA

N P

RIC

E

OF

SIN

GLE

-FA

MIL

Y H

OM

ES

Source: S&P/Case-Shiller, Delta Associates; September 2015. Note: Data reflect 20-city composite index.

$0

$20

$40

$60

$80

$100

$120

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2008 2009 2010 2011 2012 2013 2014 2015*

Corporate Profits

S&P 500 12-Month EPS

Note: *Through June 2015, seasonally adjusted at annual rates. Yearly data are not seasonally adjusted. EPS reflect operating earnings as of June 2015.

U.S. CORPORATE PRE-TAX PROFITS

Source: Bureau of Economic Analysis, Standard and Poor's, Delta Associates; September 2015.

CO

RP

OR

AT

E P

RO

FIT

S I

N T

RIL

LIO

NS

S&

P 5

00

12

-MO

NT

H E

PS

corporaTe profiTsU .S . corporate profits totaled $2 .06 trillion during the 2nd

quarter of 2015 on an annualized basis, up 2 .4% from $2 .01

trillion in 1st quarter of 2015, but down slightly from the 2014

total of $2 .07 trillion . Corporate profits have largely plateaued

in recent years as more companies are taking a cautious

approach of buying back shares and slowly increasing

dividends . Companies are continuing to weigh options on

how to best deploy earnings and profits and, in many cases,

are showing a preference for mergers and acquisitions over

riskier, capital intensive projects that could rock the boat for

shareholders . However, the recent increases in hiring indicate

that corporate leaders are becoming more confident about

consumer demand .

housing MarkeT

Home prices in the 20 major metro areas covered by S&P/Case-

Shiller increased 5 .0% during the 12 months ending June 2015,

the most recent data available . This is down from the June

2013 to June 2014 growth rate of 8 .1%, but is more in line with

the pace of overall economic growth . The growth rate of home

prices has largely stabilized in 2015 as expanding inventories of

homes for sale in many metro areas has eased pricing pressure .

The annualized pace of existing home sales increased to 5 .59

million (preliminary) in July 2015 from 5 .07 million in 2014—a

growth rate of 10 .2% . The current sales pace is the fastest seen

since the national housing crash began in 2007 . According

to the National Association of Realtors, the average existing

home sales price was $278,000 (preliminary) in July 2015, up

3 .9% from $267,500 in July 2014 .

Source: National Association of Realtors, Delta Associates; September 2015.

$200,000

$210,000

$220,000

$230,000

$240,000

$250,000

$260,000

$270,000

$280,000

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Number of Existing Home Sales**

Average Existing Home Sales Price

NU

MB

ER

OF

SA

LES

–

TH

OU

SA

ND

S O

F U

NIT

S

U .S . EXISTING HOME SALES VS. SALES PRICE A

VE

RA

GE

SA

LES

PR

ICE

*Data as of July 2015. ** Seasonally adjusted annual sales rate.



SELECTED U.S . GOVERNMENT INTEREST RATES

0%

1%

2%

3%

4%

5%

6%

7%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

INT

ER

ES

T R

AT

ES

(%

)

Effective Federal Funds Rate

10-Year Treasury

30-Year Treasury

Source: Federal Reserve Economic Data (FRED), Delta Associates; September 2015. Data are non seasonally adjusted monthly averages. 30-Year Treasury not issued between March 2002-Dec. 2005.

BASELINE BUDGET PROJECTIONS United States

Baseline budget projections as of August 2015. Source: Congressional Budget Office, Delta Associates; September 2015.

FE

DE

RA

L D

EF

ICIT

($

BIL

LIO

NS

)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

-1,200

-1,000

-800

-600

-400

-200

0

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Deficit % of GDP

DE

FIC

IT A

S A

% O

F R

EA

L G

DP

The federal budgeT

The Congressional Budget Office (CBO) projects in its August

2015 Budget Update that the fiscal year (Oct . 1-Sept . 30) 2015

Federal budget deficit will be $426 billion, representing the

smallest deficit since FY 2007 . At 2 .4% of GDP, the FY 2015 budget

is set to be below the average Federal deficit over the past 50

years, and will mark the sixth consecutive year that the deficit’s

share of the GDP has decreased since peaking in 2009 at 9 .8% .

The smaller deficit is attributed to greater than anticipated tax

revenues from businesses and households as a result of the

improving economy . In spite of this progress, the U .S . is still

running a deficit – we are not paying down our debt, we are just

increasing it at a slower rate .

If current laws and spending practices are left alone, the

Federal deficit would increase significantly over the next

decade . The deficit is currently projected to reach $1 .0 trillion

by 2025, with growth driven by an aging population, rising

health care costs, an expansion of Federal subsidies for health

insurance, and growing interest payments on the Federal debt .

The national elections of 2016 could have a major impact on

the long term picture, though, as the outcome could lead to

profound changes in Federal taxation and spending policies .

inTeresT raTes and inflaTion

There has been a great deal of discussion during the 3rd quarter

about when the Fed will increase the Federal Funds Rate, and

by how much . Recent upheaval to the global financial system,

due in part to a faltering Chinese economy, led the Fed to keep

the rate level at its September 2015 meeting . It is still unclear

whether or not the Fed intends to raise the Federal Funds rate

before the end of 2015 .

We expect some short-term volatility in financial markets,

until uncertainty surrounding the Chinese economy, and the

Chinese government’s corrective measures, diminishes . Sectors

that benefit from record-low borrowing rates will experience

the most market volatility . Commercial real estate and the REIT

sphere are experiencing downward pressures as the market

accounts for higher costs of capital, though REITs with solid

property fundamentals should be able to weather the storm .

As of the end of trading on August 31, 2015, the S&P 500 index

stood at 1972 .18, up 1 .3% over the previous 12 months . The Index

reached a 2015 high of 2130 .82 on May 21, up 13% over a year .

Inflation remained flat during the 12 months ending June 2015,

with a strong dollar and lower domestic energy prices keeping



U.S. INFLATION AND PERSONAL CONSUMPTION EXPENDITURE INDEX

Source: Federal Reserve Economic Database (FRED), Delta Associates; September 2015.

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

80 85 90 95 00 05 10 15*

PE

RC

EN

TAG

E C

HA

NG

E

CPI-U PCEPI

Note: *CPI-U and PCEPI through June 2015. Data reflects 12-month percentage change.

prices in check . This is well below the Fed’s benchmark of a

2 .0% increase, which has been a contributing factor to the

delay in raising the Federal Funds Rate . However, the personal

consumption expenditure price index (PCEPI), which takes into

account changes in consumption habits as people substitute some

goods and services for others, rose a substantial 3 .6% during the

12 months ending June 2015 . We expect inflation to be contained

in the near-term due to modest wage growth and a strong dollar,

coupled with the fact that price pressure tends to lag economic

growth by a year or more . Given these conditions, inflation will

likely remain in the 1 .0% to 1 .5% range on an annualized basis

through the remainder of 2015 .

econoMic ouTlook

National economic conditions will show modest improvement

through the latter portion of 2015, before growing at a more

solid pace in 2016 and 2017 . GDP growth only averaged 1 .5%

in the first half of the year, as it has had to overcome a weak

1st quarter for the second consecutive year . A stronger 2nd

quarter is expected to pave the way for more substantial

growth over the balance of the year .

Job growth has definitely been the bright spot of the economic

recovery . In addition, the combination of a declining

unemployment rate and a growing labor force points to greater

confidence in the job market . Sustained employment growth

over the past two years demonstrates the strength of the

national job market .

This good news is tempered by several concerns . First . wage

growth remains weak, as most of the jobs being created are

in lower paying sectors . Second, instability in international

markets – particularly China – may threaten short-term

economic prospects in the U .S . Third, a strong dollar is

hampering net exports significantly . Fourth, the timing and

potential effects of an increase to the Federal Funds Rate

remain unknown .

The next three years are expected to bring a continued steady,

albeit modest, rate of economic growth . The unemployment

rate will continue to decline, and the labor force participation

rate will increase, as hiring increases to support increased

output . Increased hiring should eventually lead to increased

compensation for workers, as companies compete for the best-

qualified employees . The reduced slack should also put upward

pressure on inflation and interest rates . That said, economic

growth has been, and will continue to be slower than in past

economic recovery cycles .

NATIONAL ECONOMIC CONDITIONS WILL SHOW MODEST IMPROVEMENT THROuGH THE LATTER PORTION OF 2015, bEFORE GROWING AT A MORE SOLID PACE IN 2016 AND 2017.

Specifically, we believe the economic outlook is as follows:

• Real GDP growth: 2 .0% in 2015 .

• Payroll jobs: 2 .7 million added in 2015; slightly higher than

last year’s total .

• Housing: Price appreciation around 5% to 5 .5% in 2015 .

• Unemployment rate: 5 .1% at end of 2015 .

• Federal Funds Rate: Hike likely before the end of 2015,

despite limited inflation .

• Long-term interest rates: Edging higher during 2015, though

at a slower pace than short term rates .

• Inflation: Around 1 .0% for 2015 as consumer demand

strengthens, but fuel costs remain low .



12-MonTh payroll eMployMenT change Through July 2015

Job change Job change

MeTro area # % MeTro area # %

LA Basin Orlando 45,300 4 .1%

Los Angeles/Long Beach/Glendale 107,900 2 .6% Denver-Boulder 41,600 2 .7%

Orange County (Santa Ana/Anaheim/Irvine) 49,600 3 .3% Philadelphia 41,500 1.5%

Riverside/San Bernardino/Ontario 50,300 4 .0% Baltimore 41,200 3 .1%

Total LA Basin 207,800 3 .0% Portland (OR) 41,000 3 .8%

New York 164,400 1 .8% Minneapolis-St . Paul 40,300 2 .1%

San Francisco Bay Area Charlotte 37,900 3 .6%

San Jose/Sunnyvale/Santa Clara 61,600 6 .2% Columbus (OH) 33,500 3 .3%

San Francisco/San Mateo/Redwood City 44,600 4 .4% Pittsburgh 32,800 2 .8%

Oakland/Fremont/Hayward 23,200 2 .2% Austin 32,500 3 .6%

Total Bay Area 129,400 4 .2% Tampa-St . Petersburg 31,800 2 .7%

Dallas/Fort Worth 121,700 3 .7% Nashville 31,200 3 .6%

Atlanta 85,000 3 .4% Indianapolis 30,800 3 .1%

Washington, DC 73,800 2 .4% San Antonio 30,700 3 .2%

Seattle 70,700 3 .8% Las Vegas 29,500 3 .4%

South Florida Salt Lake City 28,600 4 .4%

West Palm Beach/Boca Raton 16,500 3 .0% Cincinnati 27,700 2 .7%

Fort Lauderdale 25,700 3 .4% Sacramento 26,400 3 .0%

Miami/Miami Beach/Kendall 27,700 2 .6% Kansas City 23,200 2 .3%

Total South Florida 69,900 2 .9% St . Louis 21,000 1 .6%

Chicago 66,400 1 .5% Jacksonville 19,600 3 .2%

Houston 64,600 2 .2% Raleigh-Durham 18,400 2 .2%

Phoenix 59,200 3 .3% Oklahoma City 14,900 2 .4%

Boston (Metropolitan NECTA) 57,900 2 .2% Cleveland 14,800 1 .4%

San Diego 48,200 3 .6% Memphis 8,900 1 .5%

Detroit (Detroit/Warren/Livonia) 46,900 2 .5% New Orleans (3,800) -0 .7%

Note:Data are not seasonally adjusted.


naTional payroll Job growTh suMMaryThe U .S . economy gained 2 .95 million payroll jobs over the 12 months ending July 2015, representing an increase of 2 .1% . This

compares to the 25-year annual average of 1 .2 million jobs at a 1 .0% average growth rate .


The philadelphia

area econoMy

THIRD QuARTER 2015

The Philadelphia metro area’s economic performance continues

to be fueled by strong job growth . The region is outperforming

its long-term average job growth thanks largely to the Leisure/

Hospitality, Education/Health Services, and Construction/Mining

sectors . The 41,500 net payroll jobs added during the 12 months

ending July 2015 was the metro area’s highest 12-month figure

since 1999 . During this period, the Leisure/Hospitality sector led

in job gains, adding 12,800 new jobs to the region .

Other economic indicators for the metro area remained positive .

Though it is lagging behind the national rate, the region’s

unemployment rate is 6 .1% as of July 2015, down 70 basis points

from one year ago . The Philadelphia metro area’s housing market

also experienced positive growth . Home prices grew 6 .7% in the 12

months ending June 2015, compared to a 5 .4% increase nationwide .

The outlook for the Philadelphia metro area economy is bright .

Regional employment growth continues on its upward trend,

outperforming its long-term rate of job growth in three consecutive

quarters . Despite fits and starts early in the recovery, home price

appreciation has followed recent employment gains, and wage

growth should slowly pick up as the labor market continues to

recover, especially as the region’s core industries experience growth .

REGION SuSTAINS STRONG JOb GROWTH

p a y r o l l e M p l o y M e n T

ECONOMIC HIGHLIGHTSp h i l a d e l p h i a - c a M d e n - w i l M i n gTo n

M e T r o a r e a | T h i r d Q u a r T e r 2 0 1 5

2.8m i l l i o n

at July

2015

J o b c h a n g e

41.5thousand

12 months ending July

2015

u n e M p l o y M e n T r a T e

6.1% down from

6.8% one year ago

i n f l a T i o n

0.2%12 months

ending June

2015

h o u s i n g p r i c e s

6.7%12 months

ending June

2015Source: BLS, FHFA: September 2015.

at July 2015


SPONSORED BY KETTLERThe philadelphia area econoMy

payroll Jobs

The Philadelphia-Camden-Wilmington metropolitan area

ranks sixth in population among the nation’s metro areas

with about 6 .1 million residents in 2015, an increase of about

86,000 people (1 .4%) since 2010 . The Philadelphia metro area

also ranks eighth among the largest job markets nationwide,

with 2 .8 million payroll jobs . Job growth in recent years has

surpassed the 20-year annual average of 17,600 jobs . During the

12 months ending July 2015, the metro area economy added

41,500 new payroll positions, sustaining the upward trend that

began in 2010 .

Job growTh by secTor

Nine sectors added jobs in the Philadelphia metro area over

the 12 months ending July 2015 . The top three sectors remain

the same as last quarter: Leisure/Hospitality, Education/Health

Services, and Construction/Mining . Combined, these three

sectors added a total of 31,100 net new jobs to the economy

during the previous 12 months . The Leisure/Hospitality

sector is the frontrunner, gaining 12,800 jobs . The recent

uptick in consumer confidence has had an effect on the

growth of Leisure/Hospitality jobs . Meanwhile, four sectors

lost employment, as the Federal Government, State/Local

Government, Manufacturing, and Information shed a total of

6,900 jobs over the 12 month period ending July 2015 .

PAYROLL JOB GROWTH Philadelphia-Camden-Wilmington Metro Area

-8,000 -4,000 0 4,000 8,000 12,000 16,000

State and Local Government

Manufacturing

Information

Federal Government

Professional/Business Services

Other Services

Wholesale Trade

Retail Trade

Financial Services

Transportation/Utilities

Construction/Mining

Education/Health

Leisure/Hospitality

J O B C H A N G E *

+48,400

-6,900

Source: Bureau of Labor Statistics, Delta Associates; September 2015. *12 months ending in July 2015.

-120

-100

-80

-60

-40

-20

0

20

40

60

80

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*

20-Year Annual Average = 17,600/Year

TH

OU

SAN

DS

OF

NE

W P

AY

RO

LL

JOB

S (

AN

NU

AL

AV

ER

AG

E)

PAYROLL JOB GROWTH Philadelphia-Camden-Wilmington Metro Area

*12 months ending in July 2015. Source: Bureau of Labor Statistics, Delta Associates; September 2015.

PAYROLL JOB GROWTH Comparable Metro Areas | 12 Months Ending July 2015

TH

OU

SAN

DS

OF

NE

W

PA

YR

OLL

JO

BS


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Washington Chicago Philadelphia Baltimore Pittsburgh St. Louis Cleveland

41.5

Trends in eMployMenT by MaJor secTorPhiladelphia-Camden-Wilmington Metro Area

In Thousands

July 2015 12-MonTh change

20-year annual average

Leisure/Hospitality 270 .6 12 .8 3 .9

Education/Health 587 .1 11 .6 9 .5

Construction/Mining 116 .7 6 .7 0 .6

Transportation/Utilities 96 .2 4 .6 0 .5

Financial Services 209 .3 3 .9 0 .3

Retail Trade 300 .2 3 .7 0 .9

Wholesale Trade 125 .4 2 .4 0 .4

Other Services 121 .2 1 .4 1 .3

Professional/Bus . Services 448 .8 1 .3 6 .8

Federal Government 51 .1 (0 .2) (1 .0)

Information 45 .6 (1 .0) (0 .6)

Manufacturing 178 .1 (2 .1) (6 .1)

State/Local Government 256 .8 (3 .6) 1 .1

Total 2,807 41.5 17.6


SPOnSOrED bY kETTLErThe philadelphia area econoMy

uneMployMenT raTe

The unemployment rate in the region was 6 .1% (not seasonally

adjusted) as of July 2015, down from 6 .8% one year ago . This

compares to the seasonally-adjusted national rate of 5 .3%

in July 2015, which was down 90 basis points from one year

earlier . Philadelphia has the highest unemployment rate

among comparable metro areas at July 2015 . The rate likely

edged up as formerly discouraged unemployed workers

sought employment . We expect the Philadelphia metro area’s

unemployment rate to stabilize in the mid 5% range during

2015, as new jobs are created while the labor force continues

to grow .

regional consuMer price index

Overall inflation in the Philadelphia-Camden-Wilmington

metro area was 0 .2% during the 12 months ending July 2015 .

This compares to a national inflation rate increase of 0 .1%

during the same period . Local gasoline prices continue to

decline with prices dropping 24 .4% over the 12 months ending

July 2015 . Transportation costs also decreased 6 .7% during the

same time period, compared to a 2 .0% increase from the same

12 month period in 2014 . Medical expenses in the Philadelphia

metro area rose 3 .4% during the 12 months ending July 2015,

slightly above the increase of 3 .3% during the preceding 12

months . For 2015, we expect inflation to be contained locally, as

slowly progressing national economic conditions keep prices

in check, with overall price growth of 1 .0% to 1 .5% . As long as

appropriate monetary measures are in place at the Federal

level, inflation should remain controlled .

housing prices

According to the repeat-sales index of the Federal Housing

Finance Agency (FHFA), home prices in the Philadelphia metro

area went up 6 .7% during the 12 months ending June 2015 . With

prices nationwide increasing 5 .4% during the same period, the

Philadelphia metro area housing market outperformed the

nation for the first time since second quarter 2010 . Despite

some irregular movement in recent years, the combination of

regional economic growth and improving national consumer

confidence has helped the housing market to rebound, albeit

slightly . Regional job gains should bring optimism for the

housing market in the year ahead, with single digit gains as

it keeps pace with construction spending and income growth .

UNEMPLOYMENT RATES Comparable Metro Areas | July 2014 vs. July 2015

0%

1%

2%

3%

4%

5%

6%

7%

8%

Washington Cleveland St. Louis Baltimore Pittsburgh Chicago Philadelphia

July 2014 July 2015

UN

EM

PLO

YM

EN

T R

AT

E

National Rate*

5.3%

6.2%

Basis Point Change -70 -40 -80 -100 -110 -70


-140

*Seasonally-adjusted.

AN

NU

AL

PR

ICE

IN

DE

X C

HA

NG

E

CONSUMER PRICE INDEX (CPI) Philadelphia-Camden-Wilmington Metro Area

-3%

-2%

-1%

0%

1%

2%

3%

4%

Jan-09

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

10-Year Annual Average = 2.2%

Note: Data are 12 months ending in each period, through June 2015. Source: Bureau of Labor Statistics, Delta Associates; September 2015.

HOUSING PRICES Philadelphia Metro Area vs. United States

Source: Federal Housing Finance Agency, Delta Associates; September 2015.

PE

RC

EN

T C

HA

NG

E

Note: Seasonally-adjusted. Each value in graph reflects HPI change at second quarter year-over-year.

-10%

-5%

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Philadelphia MSAUnited States



hoMe building Trends

There were 14,210 units that received new residential permits

in the Philadelphia metro area from January 2015 to July

2015 . This compares to the 14,508 units during the same time

period in 2014 . Though there is a slight decline over the year,

homebuilding continues to rebound from the slowdown during

the Great Recession . During January 2009 to July 2009, for

example, there were only 7,145 residential units issued with

permits . This upward trend in permitting activity has had a

follow-on effect on the region’s Construction/Mining jobs in

recent quarters .

Though the majority of the permits issued are for single-family

units, an increase in the types of jobs and income categories that

tend to generate demand for rental apartments has triggered

a notable increase in multifamily construction activity . From

January 2015 to July 2015, about 22 .3% of the permits issued

were for structures with 3 or more units . This compares to a

share of only 3 .8% multifamily residential permits given at

year-to-date July 1995 .

region’s core indusTries

The U .S . Conference of Mayors estimates that the Gross

Metropolitan Product (GMP) of the Philadelphia region for all of

2014 totaled at $393 .8 billion, an increase in real terms of 2 .7%

over 2013 . They also project that the Philadelphia GMP will grow

to $406 .6 billion in 2015 and $425 .5 billion by 2016 . The Financial

Activities sector makes up the largest share of the economy,

generating 30% of the Philadelphia metro area’s economic

activity . Other significant components of the region’s economy

are Professional/Technical Services, Wholesale/Retail Trade, and

Education/Health Services, which together account for almost

three-fourths of the total GMP .

philadelphia area econoMic ouTlook

We expect that the Philadelphia metro area will continue to

experience economic expansion . In particular, we expect

regional jobs to grow at a rate above the 20-year average during

the three-year period from 2015 through 2017 . Based on the re-

benchmarking of the Bureau of Labor Statistics’ employment

data, the region is projected to gain a total of 40,000 net new

jobs in 2015, followed by slight growth of 41,000 jobs in 2016 . For

this expansion cycle, employment growth in the Philadelphia

metro area is expected to peak in 2017, adding another 43,000

jobs, based on national trends and the recent performance of

the region’s core industries .

JOB GROWTH Philadelphia-Camden-Wilmington Metro Area

TH

OU

SAN

DS

OF

NE

W P

AY

RO

LL

JOB

S (

AN

NU

AL

AV

ER

AG

E)

-120

-100

-80

-60

-40

-20

0

20

40

60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

20-Year Average = 17,600/Year


3-Year Projected Average = 41,300/Year

Note: Estimate. Percentages may not add to 100% due to rounding.

2014

GMP IN BILLIONS $ % OF GMP Financial Activities $118.1 30%

Professional/Technical Services $59.1 15%

Wholesale and Retail Trade $47.3 12%

Education and Health Services $43.3 11%

Federal and State Government $31.5 8%

Manufacturing $27.6 7%

Leisure and Hospitality $11.8 3%

Transportation and Warehousing $7.9 2%

Other Smaller Core Sectors and Local-Serving Economic Activities $47.3 12%

Total GMP $393.8 100%

CORE ECONOMIC SECTORS Philadelphia-Camden-Wilmington Metro Area

Source: BEA, U.S. Conference of Mayors, Delta Associates; September 2015.

RESIDENTIAL BUILDING PERMITS Philadelphia Metro Area

NU

MB

ER

OF

UN

ITS

Source: U.S. Census, Delta Associates; September 2015.

0

9,000

18,000

27,000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

14,210

Note: Each annual data is for year-to-date July.


SPOnSOrED bY kETTLErThe philadelphia area econoMy

We expect much of the hiring to be generated by the Philadelphia

region’s economic mainstay: the Education and Health Services

sector . Despite a lackluster performance in recent months,

the Professional/Business Services sector will remain one the

region’s economic drivers, especially as it repositions itself to

service the region’s life sciences industry . The future of the

Philadelphia metro area economy is bright, but recovery likely

will proceed as it has in recent years: on a bumpy – but upward

– trajectory .


2sTaTe of The

philadelphia class a

aparTMenT MarkeT


The Philadelphia area apartment market remains healthy at third

quarter 2015, spurred in part by job growth over the past twelve

months that was stronger than the 20-year average . Many of these

new jobs have been in sectors with concentrations of lower-wage

occupations, such as the Leisure/Hospitality sector . Expanding job

opportunities with the region’s renowned educational and medical

institutions have also attracted a large number of recent college

graduates . New workers in both of these types of industries tend to

rent rather than own, generating demand for rental apartments in

the metro area — both lower-rent Class B units and more expensive

Class A units . Combined with changing demographic and lifestyle

preferences, stronger job growth likely will sustain long-term

optimism for the regional apartment market .

The Class A stabilized vacancy rate in the region declined 40 basis

points to 2 .5% at third quarter 2015, compared to 2 .9% at this time

last year . This decline occurred despite increased competition from

new deliveries — indicating strong absorption in the Class A market .

• Suburban Pennsylvania vacancy declined 30 basis points to

2 .1% from 2 .4% at September 2014 .

• Vacancy went down 160 basis points in the City of Philadelphia

to 2 .0% from 3 .6% at the same time last year .

• In contrast, Southern New Jersey vacancy rates went up 110

basis points to 4 .0% at third quarter 2015 compared to 2 .9%

one year ago .

All substates in the region saw increases in effective rents over

the year . The metro area has experienced year-over-year effective

rent increases for five consecutive quarters since third quarter

2014 . For the 12-month period ending September 2015, here are

the effective rent changes:

• City of Philadelphia up 3 .6%

• Suburban Pennsylvania up 0 .8% .

• Southern New Jersey up 3 .4% .

sTaTe of The philadelphia

class a aparTMenT MarkeT

THIRD QuARTER 2015

APARTMENT MARKET bENEFITS FROM STRONG REGIONAL JOb GROWTH


SPONSORED BY KETTLERsTaTe of The philadelphia class a aparTMenT MarkeT

Metro-wide, effective rents rose 2 .3% from the third quarter 2014 .

Average metro-wide effective rents at third quarter 2015 are

$1,763, or $1 .80 per SF . Effective rents average $2,248 ($2 .45 per SF)

for high-rise product in the City of Philadelphia and $1,514 ($1 .50

per SF) for low-rise product in the suburbs .

ciTy of philadelphia

Philadelphia’s growing core of recent college graduates and

improving job opportunities for them has helped generate

demand for new rental apartments in the city, especially in

Center City and University City . Job growth at companies

in the “Eds and Meds” and technology sectors, specifically

with companies that have expanded to Philadelphia, has

attracted the younger, Millennial group . Those in this age

cohort tend to rent and choose the conveniences of living in

apartments located downtown . These recent employment and

demographic trends have bolstered rent growth in the city,

with effective rents increasing 3 .6% over the past year . Robust

demand has also kept the stabilized vacancy rate low, with

the citywide vacancy rate decreasing 160 basis points from

September 2014 to 2 .0% .

Increased development activity, however, raises near-

term concerns for this currently-healthy market . A more

competitive landscape is expected in the next 12 months as

more projects currently under construction deliver . Currently,

there are 4,380 available units under construction or planned

for delivery in the next 36 months, after accounting for

attrition . Philadelphia’s supply/demand relationship indicates

that vacancy will edge up slightly and rent growth is likely to

stabilize near its five-year average over the next 24 months .

Over the long-term, however, we expect Philadelphia to

remain a healthy market .

suburban pennsylvania

Effective rents in Suburban Pennsylvania increased slightly

by 0 .8% over the year . Meanwhile, the stabilized vacancy rate

decreased to 2 .1% from last year’s rate of 2 .4% . Effective rents

increased in all of the submarkets in Suburban Pennsylvania,

albeit only slightly . In the 12 months ending September 2015,

rents in Montgomery County went up 0 .4%, rents in Delaware

and Chester counties increased 0 .4%, and apartments in

Bucks County experienced a rent increase of 2 .3% . Meanwhile,

the stabilized vacancy rate in Suburban Pennsylvania is

2 .1% at third quarter 2015 . Vacancy is 1 .6% in Bucks County,

2 .8% in Montgomery County, and 1 .8% in Delaware and

Chester counties . This compares with 1 .6%, 4 .9%, and 0 .9%,

respectively, one year ago .

EFFECTIVE RENT AND VACANCY RATE Class A Apartments | Philadelphia Metro

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

$1,600

$1,700

$1,800

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Average Effective Base RentStabilized Vacancy

STA

BIL

IZE

D V

AC

AN

CY

RA

TE

AV

ER

AG

E E

FFE

CT

IVE

BA

SE

RE

NT

Source: Delta Associates, September 2015.

2 . 9 % / Y E A R L O N G - T E R M R E N T G R O W T H

* As of Third Quarter.

AN

NU

AL

NE

T A

BS

OR

PT

ION

O

F A

LL C

LAS

SE

S O

F U

NIT

S

ANNUAL ABSORPTION OF APARTMENTS Major Apartment Markets | Long-Term Average

Source: REIS, Delta Associates; September 2015.

Note: Excludes NY metro to conserve scale.

896

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

DFW Hou Was Atl LA Phx Balt Phil Chi Pgh

Class A Absorption in City of Philadelphia Over Past 12 Months

= 986

RENTER HOUSEHOLDS Philadelphia Metro Area vs. U.S. | 2006 - 2015

RE

NT

ER

S A

S %

OF

TOTA

L H

OU

SE

HO

LDS

26%

27%

28%

29%

30%

31%

32%

33%

34%

35%

36%

37%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Philadelphia Metro

U.S.

Source: U.S. Census Bureau, Delta Associates; September 2015.

* As of the Second Quarter.


SPOnSOrED bY kETTLErsTaTe of The philadelphia class a aparTMenT MarkeT

start map proJecTs ThaT sTarTed consTrucTionciTy of philadelphia | Third QuarTer 2015

size of proJecT (uniTs)

less than 150

150-300

More than 300

n



SPONSORED BY KETTLERsTaTe of The philadelphia class a aparTMenT MarkeT

A W O R D A b O u T O u R D E F I N I T I O N O F VA C A N C Y R AT E

We sometimes hear from apartment developers and managers

that their portfolio vacancy rate is 200 to 400 basis points higher

than the numbers we report, which places them under unfair

investor scrutiny. While we state methodological matters at

the end of our report (Section 5), we thought it appropriate to

describe here our term “vacancy.”

When we conduct our quarterly surveys, we obtain information

on “units available to lease” – that is, physical vacancy.

Obtaining the information this way, of course, may produce

several important differences from “vacancy” as reported in

your financial statements. Simply stated, the difference can

be characterized as:

Delta’s Definition: Available units to lease

Operating Statement Vacancy: Economic vacancy

Our definition (available units) may therefore be understated

compared to yours (economically vacant) by our exclusion of

units occupied by non-paying tenants (which we cannot know),

and of units not available for lease, such as employee units and

model apartments. We estimate that this adds about 100 to 150

basis points to your definition of vacancy, as compared with

ours. Our vacancy rate may also be understated, compared

with yours, by our exclusion of what are economically vacant,

on-notice units for which a lease to occupy in the future has

been signed (hence, they are not currently available to lease).

We estimate that this potentially adds another 150 to 200 basis

points to your definition of vacancy, as compared to ours.

CLASS A APARTMENT RENT PER SF Philadelphia Metro Area | 4th Quarter 2005 – 2015

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

$2.60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Center City So. NJ Sub. PA Phil Metro

$2.45

$1.80


$1.50 $1.47

* As of Third Quarter.

souThern new Jersey

Effective rents increased in all of the submarkets in Southern New

Jersey . In Camden County, effective rents increased 5 .8% at third

quarter 2015 . Rents in Burlington County and Mercer County also

increased over the year, up 1 .2% and 4 .8%, respectively . Overall,

Southern New Jersey has a stabilized vacancy rate of 4 .0% this

quarter, up from 2 .9% last year . Burlington County experienced

a decrease in vacancy rates, from 2 .8% one year ago to 2 .1% this

quarter . Meanwhile, stabilized vacancy rates increased in Camden

County and Mercer County . The vacancy rate in Camden County

doubled to 6 .0% from September 2014 while Mercer County

experienced an increase in the stabilized vacancy rate to 2 .7%,

from 0 .9% last year .

ouTlook

In the short run, the Philadelphia metro area apartment market

will experience some pressure on occupancy due to the highly

competitive environment from the historically-large volume

of new deliveries . As these new units are absorbed (and as this

new supply inevitably leads to delays for other planned projects),

market conditions are expected to normalize .

Although a high volume of new product will still be delivering

over the next twelve months, the apartment market is poised for

steady growth thanks to continued improvement in the regional

job market . In particular, the recent increase in the types of jobs in

income and demographic categories that tend to rent rather than

own will benefit the rental apartment market .

In the intermediate- and long-term, we expect the renter share of

Philadelphia metro area households to continue to rise through this

housing cycle, supporting robust demand for Class A apartments .

Over the next 24 months we expect annual rent growth in the

region to remain in the 2% to 4% range . Three years from now,

many submarkets will have strong development prospects .

naTional council of real esTaTe invesTMenT fiduciaries

23DELTA ASSOCIATES | PhILADELPhIA CLASS A APArTmEnT mArkET rEPOrT | ThIrD QuArTEr 2015 | nOT fOr rEDISTrIbuTIOn

SPOnSOrED bY kETTLEr

12-MONTH METRO AREA TOTAL RETURN 1

Atlanta 20.46%

Austin 12.69%

Dallas 12.55%

Chicago 12.39%

National Average 11.60%

Houston 10.95%

Phoenix 10.64%

Baltimore 8.73%

Philadelphia 7.64%

Washington 3.88%

1 NCREIF compiles returns based on its members' $70 billion apartment portfolio. The index includes both current income and estimated capital appreciation returns.

Source: Delta Associates, based on trailing 12-month data in NCREIF "Real Estate Performance Report: Second Quarter 2015".

TABLE 2.1NATIONAL COUNCIL OF REAL ESTATE INVESTMENT FIDUCIARIES

Return Index | Investment Grade Apartment Properties

12 Months Ending June 2015 1

TOTAL APARTMENT INVESTOR RETURNS Philadelphia Metro vs. U.S. | 2007 – Q2 2015

-35

-25

-15

-5

5

15

25

U.S. Philadelphia Metro

Source: NCREIF, Delta Associates, September 2015.

TOTA

L RE

TURN

(IN

COM

E +

APPR

ECIA

TIO

N)

2007 2008 2009 2010 2011 2012 2013 2014 Q2 2015

SPONSORED BY KETTLERnaTional council of real esTaTe invesTMenT fiduciaries

philadelphia

sTaTisTical

reporT

3

philadelphia sTaTisTical reporT



Table 3.1 Philly Q3 2015 Class A Tables.xlsxX:\DELTA\OLDSERV\Open Projects\14222\Q3 2015\Philly Q3 2015 Class A Tables.xlsx

GEOGRAPHIC AREA

Number of Units Surveyed 7,934 3,536 11,470 5,897 17,367

Rent Levels (Avg. of All Unit Sizes)

Face Rent $1,540 $1,481 $1,522 $2,260 $1,772

Concession as a % of Face Rents 0.6% 0.3% 0.5% 0.5% 0.5%

Effective Rent $1,530 $1,477 $1,514 $2,248 $1,763

Effective Rent per Square Foot $1.50 $1.47 $1.50 $2.45 $1.80

Annual Effective Rent Increase

- Since 9/30/10 2.0% 1.9% 2.0% 2.0% 2.0%

- Since 9/30/14 ¹ 0.8% 3.4% 1.6% 3.6% 2.3%

Vacancy September 2015

Overall 2 7.7% 4.0% 6.6% 11.6% 8.3%

Stabilized 3 2.1% 4.0% 2.7% 2.0% 2.5%


Overall 2 3.3% 2.9% 3.2% 8.9% 5.0%

Stabilized 3 2.4% 2.9% 2.6% 3.6% 2.9%

1 Excludes projects that were not actively marketing at date of previous survey, i.e. same project/unit price comparison.2 Includes actively marketing projects.3 Excludes actively marketing projects.Source: Compiled by Delta Associates, 1717 K Street, NW, Suite 1010, Washington, DC 20006. Phone: (202) 778-3100.

Phone: (202) 778-3100. Last Update: September 2015.

TABLE 3.1KEY MARKET INDICATORS FOR CLASS A RENTAL APARTMENTS

Summary | Philadelphia Metropolitan AreaThird Quarter 2015

MARKET INDICATORPHILADELPHIA METRO AREA

TOTAL/AVERAGESUBURBAN

PENNSYLVANIASOUTHERN

NEW JERSEY

SUBTOTAL- PHILADELPHIA

SUBURBS

CITY OF PHILADELPHIA


DELTA ASSOCIATES | PhILADELPhIA CLASS A APArTmEnT mArkET rEPOrT | ThIrD QuArTEr 2015 | nOT fOr rEDISTrIbuTIOn28

SPONSORED BY KETTLER


Number of Units Surveyed 2,776 3,736 1,422

Rent Levels

Face Rent $1,514 $1,577 $1,492

Concession as a % of Face Rents 1.3% 0.3% 0.0%

Effective Rent $1,494 $1,572 $1,492

Effective Rent per Square Foot $1.45 $1.53 $1.54


- Since 9/30/10 1.5% 2.9% 0.8%

- Since 9/30/14 ² 0.4% 0.4% 2.3%


Overall 3 8.7% 9.3% 1.6%

Stabilized 4 2.8% 1.8% 1.6%


Overall 3 4.9% 2.8% 1.6%

Stabilized 4 4.9% 0.9% 1.6%

1 Includes walk-up and elevator-served apartments of one to four stories.2 Excludes projects that were not actively marketing at date of previous survey, i.e. same project/unit price comparison.3 Includes actively marketing projects.4 Excludes actively marketing projects.

Source: Compiled by Delta Associates, 1717 K Street, NW, Suite 1010, Washington, DC 20006. Phone: (202) 778-3100.Phone: (202) 778-3100. Last Update: September 2015.

0.8%

7.7%

2.1%

3.3%

2.4%

2.0%

TABLE 3.2KEY MARKET INDICATORS FOR CLASS A LOW-RISE RENTAL APARTMENTS 1

Selected Submarkets | Suburban PennsylvaniaThird Quarter 2015

MARKET INDICATOR

SUBMARKETSUBURBAN

PENNSYLVANIA TOTAL/AVERAGE

MONTGOMERY COUNTY

DELAWARE & CHESTER COUNTIES

BUCKSCOUNTY

7,934

$1,540

0.6%

$1,530

$1.50





Number of Units Surveyed 1,704 1,832 3,536 1,929

Rent Levels

Face Rent $1,596 $1,374 $1,481 $1,784

Concession as a % of Face Rents 0.4% 0.1% 0.3% 0.0%

Effective Rent $1,589 $1,373 $1,477 $1,784

Effective Rent per Square Foot $1.53 $1.42 $1.47 $1.67


- Since 9/30/10 1.8% 2.0% 1.9% 2.1%

- Since 9/30/14 ² 5.8% 1.2% 3.4% 4.8%


Overall 3 6.0% 2.1% 4.0% 2.7%

Stabilized 4 6.0% 2.1% 4.0% 2.7%


Overall 3 3.0% 2.8% 2.9% 0.9%

Stabilized 4 3.0% 2.8% 2.9% 0.9%

1 Includes garden and low-rise style apartments, mid-rise apartments, high-rise apartments, and warehouse conversions.2 Excludes projects that were not actively marketing at date of previous survey, i.e. same project/unit price comparison.3 Includes actively marketing projects.4 Excludes actively marketing projects.

Source: Compiled by Delta Associates, 1717 K Street, NW, Suite 1010, Washington, DC 20006. Phone: (202) 778-3100.Phone: (202) 778-3100. Last Update: September 2015.

TABLE 3.3KEY MARKET INDICATORS FOR CLASS A LOW-RISE RENTAL APARTMENTS 1

Selected Submarkets | Southern New Jersey and Mercer CountyThird Quarter 2015

MARKET INDICATOR

SUBMARKETSOUTHERN NEW JERSEY

TOTAL/AVERAGEMERCERCOUNTYCAMDEN

COUNTYBURLINGTON

COUNTY




Number of Units Surveyed 5,897

Rent Levels

Face Rent $2,260

Concession as a % of Face Rents 0.5%

Effective Rent $2,248

Effective Rent per Square Foot $2.45


- Since 1988 3.3%

- Since 9/30/10 2.0%

- Since 9/30/14 ¹ 3.6%


Overall 2 11.6%

Stabilized 3 2.0%


Overall 2 8.9%

Stabilized 3 3.6%

Absorption Trends

986

Supply Projections

# of Market Rate Units Under Construction & Available

Plus Planned for Delivery in the Next 36 Months 4

For Comparison

at 9/30/2014 4,846

1 Excludes projects that were not actively marketing at date of previous survey, i.e. same project/unit price comparison.2 Includes actively marketing projects.3 Excludes actively marketing projects.4 See list of under construction and planned projects on Tables 5.6 and 5.7. Accounts for attrition.Source: Compiled by Delta Associates, 1717 K Street, NW, Suite 1010, Washington, DC 20006. Phone: (202) 778-3100.

Phone: (202) 778-3100. Last Update: September 2015.

# of Market Rate Units Absorbed Over the Past 12 Months

4,342

TABLE 3.4KEY MARKET INDICATORS FOR CLASS A RENTAL HIGH-RISE APARTMENTS

City of PhiladelphiaThird Quarter 2015

MARKET INDICATORCITY OF

PHILADELPHIA




1. AQ Rittenhouse 70 12/14 82. 3737 Chestnut 99 2/15 123. Avenir on Fifteenth 108 3/15 154. 3601 Market Street 73 5/15 155. The Shirt Corner 44 5/15 11

Total: 394 -- 12

Source: Delta Associates, 1717 K Street, NW, Suite 1010, Washington, DC 20006. Phone: (202) 778-3100.Last update: September 2015

DATE MARKETING BEGAN

TABLE 3.5ABSORPTION SUMMARY

ACTIVELY MARKETING RENTAL APARTMENT PROJECTSCity of Philadelphia | Third Quarter 2015

OVERALL MONTHLY LEASE-UP PACE

11027618036359

988

1 Includes market rate units only.

COMP. # PROJECT NAME/LOCATION TOTAL UNITS 1 UNITS ABSORBED 1




TABLE 3.6ABSORPTION SUMMARY

RECENTLY STABILIZED APARTMENT PROJECTSCity of Philadelphia | Third Quarter 2015

1. 600 on Broad 7/11 2/12 132. The Commonwealth 9/11 5/12 113. Penn Treaty Village Pennthouses, Ph. 1 11/11 3/13 84. 229 Arch 2/12 6/13 135. The Arch 7/12 2/13 146. 2040 Market Street 8/12 6/13 267. Tower Place - Phase I 12/12 6/15 78. 2116 Chestnut Street 2/13 3/15 129. Goldtex Building 3/13 3/15 7

10. The Sansom 4/13 3/14 811. 320 Walnut 5/13 12/13 1112. The Granary 5/13 12/14 1213. Icon 11/13 6/15 1114. Station at Manayunk 1/14 8/15 715. Southstar Lofts 2/14 3/15 616. The Croydon 4/14 3/15 1217. 1900 Arch 4/14 3/15 2218. 31 Brewerytown 8/14 9/15 5

Total: -- -- 102,7491 Includes market rate units only.

Source: Delta Associates, 1717 K Street, NW, Suite 1010, Washington, DC 20006. Phone: (202) 778-3100.Last update: September 2015

64

20432116310477

22720614979

127246

282

10098

12665

111

DATE STABILIZEDOVERALL MONTHLY

LEASE-UP PACECOMP. # PROJECT NAME/LOCATION TOTAL UNITS 1 DATE MARKETING BEGAN




Source: Delta Associates, 1717 K Street NW, Suite 1010, Washington, DC 20006; Phone: (202) 778-3100.

Last update: September 2015.

Low rise renovation map

proJecTs under consTrucTion

in lease-up

not yet leasing

Map 3.1Rental apaRtMent pRojects UndeR constRUction and/oR MaRketing | city of pHiladelpHia

Third Quarter 2015

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Total Per Unit

CLASS A LOW-RISE APARTMENTS

1. Comparable #1 12/14 244 1989 $53,300,000 $218,443

Glen Mills, PA

Total/Average: -- 244 -- $53,300,000 $218,443

CLASS A MID-RISE/HIGH-RISE

1. Comparable #1 1/14 40 2009 $12,000,000 $300,000

Philadelphia, PA

2. Comparable #2 3/14 40 2009 $12,000,000 $300,000

Philadelphia, PA

3. Comparable #3 6/14 80 1970 $28,870,000 $360,875

Philadelphia, PA

4. Comparable #4 9/14 104 2012 $42,000,000 $403,846

Philadelphia, PA

Total/Average: -- 264 -- $94,870,000 $359,356

Note: Delta Associates no longer provides the name of each project listed above except to appraisal clients of the firm

and those who provide this type of transaction data to Delta. If you wish a list of project names and you qualify to receive

same, email your request to: [email protected].

Source: Compiled by Delta Associates, 1717 K Street NW, Suite 1010, Washington, DC 20006.

Phone: (202) 778-3100. Last update: 9/2015.

TABLE 3.10SUMMARY OF CLASS A APARTMENT BUILDING SALES

Philadelphia Metropolitan Area2014

Project Name/Location Date of Sale # of Units Year BuiltSale Price




Total Per Unit

CLASS A LOW-RISE APARTMENTS

1. Comparable #1 1/15 375 2005 $80,650,000 $215,067

Conshohocken, PA

2. Comparable #2 2/15 338 2004 $56,425,000 $166,938

Norristown, PA

3. Comparable #3 3/15 180 2013 $42,500,000 $236,111

Lansdale, PA

4. Comparable #4 3/15 116 2008 $17,200,000 $148,276

Lansdale, PA

5. Comparable #5 5/15 248 1989 $43,200,000 $174,194

Yardley, PA

Total/Average: -- 1,257 -- $239,975,000 $190,911

CLASS A MID-RISE/HIGH-RISE

1. Comparable #1 8/15 110 2014 $51,100,000 $464,545

Philadelphia, PA

2. Comparable #2 8/15 321 2013 $160,000,000 $498,442

Philadelphia, PA

Total/Average: -- 431 -- $211,100,000 $489,791

Note: Delta Associates no longer provides the name of each project listed above except to appraisal clients of the firm

and those who provide this type of transaction data to Delta. If you wish a list of project names and you qualify to receive

same, email your request to: [email protected].

Source: Compiled by Delta Associates, 1717 K Street NW, Suite 1010, Washington, DC 20006.

Phone: (202) 778-3100. Last update: 9/2015.

TABLE 3.11SUMMARY OF CLASS A APARTMENT BUILDING SALES

Philadelphia Metropolitan AreaThrough September 2015

Project Name/Location Date of Sale # of Units Year BuiltSale Price

4explanaTion of

geographic coverage

and MeThodology


MARKET AREA COVERAGEDelta Associates currently surveys Class A garden and high-

rise apartment units in seven submarkets in the Philadelphia

region . The map on the following page depicts the geographic

areas covered in this report .

Delta Associates collects data on a statistically significant

sample of the Class A product in each covered submarket . A

total of approximately 18,000 units are surveyed at the end of

each quarter .

PRODuCT DEFINITION“Class A” product is defined by Delta Associates generally

as built in 1991 or later and offering a separate clubhouse,

decorated model units, two bedroom/two bath units, and a

large community amenity package most often including a

fitness center and swimming pool . The tenant pays gas and/

or electric in addition to telephone and cable television . The

projects are typically 200+ units except in submarkets where

quality product is scarce .

INTRODuCTION OF NEW, ACTIVELY MARKETING uNITSNew communities are added to submarket surveys as soon as

they begin pre-leasing units . The overall current asking and

effective rents and rents per square foot of gross leasable area

include these new communities . However, in comparing current

quarter rents to previous year rents, these new communities

are excluded until they have been marketing for one full year .

This is done so as to dilute the impact on rent rate increases

often associated with newly introduced product .

MeThodology

and glossary

FACE RENTFace rent is the asking rent for each unit, excluding any

concessions or rent specials given . Delta Associates quotes

the weighted average asking base rent for each sub-market –

the asking rent for a first floor unit without any premiums for

fireplaces, views, etc .

EFFECTIVE RENTEffective rent deducts from face rent any concessions or rent

specials for any unit type offered at a surveyed project . Typi-

cally, concessions are used selectively to lease weaker floor

plans or surplus units .

STAbILIzED VACANCY“Stabilized Vacancy” as used herein is the rate of “available

units” in stabilized properties . Once a property achieves 95%

occupancy, it is considered “stabilized” and says in our pool of

stabilized properties even if it falls below 95% at a subsequent

reporting date .

We obtain information on “available units” when conducting

our surveys . Obtaining the information this way may produce

several important differences from “vacancy” as reported in

financial statements . Simply stated the difference can be

characterized as:

• Delta’s: Available units to lease

• Financial statement: Economic vacancy


SPONSORED BY KETTLERexplanaTion of geographic coverage and MeThodology

“Available units” is understated compared to “economically

vacant” by our exclusion of units occupied by dead-beat tenants

and units not available for lease, such as employee units and

model apartments . Our occupancy rate is overstated compared

to financial reporting by our exclusion of economically vacant,

on-notice units for which a lease to occupy in the future has

been signed . As compared to the “vacancy rate” as used in

financial reports, we estimate that the former reduces our

“available units” (vacancy rate) estimate by about 100 to 150

basis-points and the latter another 150 to 200 basis-points .

OVERALL VACANCY“Overall vacancy” is defined to include all physically vacant,

unrented units in all projects surveyed, including those

in actively marketing communities . Therefore, the overall

vacancy figures include new, unrented units still in initial

lease-up .

PLANNING PIPELINEThe planning pipeline includes projects in the advanced

planning stages . This pipeline, as defined here, does not

include all projects being planned . To be included on this list,

a planned community typically would have financing and

approvals in place . Some communities are included if Delta

Associates feels that financing and/or site plan approval are

imminent .


SPOnSOrED bY kETTLErphiladelphia area subMarkeTs

7

5

6

1

2

3

4

Source: REIS, ESRI, Delorme, Delta Associates; June 2015

PHILADELPHIA AREAaparTMenT subMarkeTs

SubMARKETS1 . Chester Co ./Delaware Co .2 . Montgomery County3 . Bucks County4 . City of Philadelphia5 . Camden County6 . Burlington County7 . Mercer County

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t e 5 · delta’s 3rd annual philadelphia apartment market event was held on april 21, 2015 at the...

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