Multifamily Fundamentals in Philadelphia Remain Stable Despite Wave of New Supply

Sustained labor market momentum, anchored by the education and health services sector, continues to drive apartment absorption across the Philadelphia metro area. This demand has supported area vacancies, with most urban and suburban submarkets recording year-over-year declines. The trend was most pronounced in the suburbs, notably in Exton–Malvern where vacancy tightened by 250 basis points, while the urban Center City West submarket posted a 140-basis-point drop. Still, future performance will likely vary due to an uneven construction pipeline. Of the 12,400 units currently underway, including 2,800 scheduled for completion by year-end, development is skewed toward the urban core, particularly within the River Wards, Kensington, Fishtown, and Northern Liberties submarkets. This contrasts with limited supply growth activity in suburban areas. Rent trends reflect this dynamic, as suburban asking rents increased 2.1% year over year compared to a 0.5% gain across properties in urban submarkets. These metrics align with long-term demographic patterns, which show a 27% population expansion in suburban counties between 2000 and 2024 compared to 2% growth in the core.

Philadelphia’s multifamily investment market cooled somewhat in the third quarter after a strong first half, but year-to-date metrics remain well ahead of 2024. Through the third quarter, transaction counts are up roughly 45% from last year, and 2025 has already surpassed 2024 in total trades. Dollar volume has reached over $1.0 billion year to date, compared with $833 million during the same period last year, putting the market on pace to approach its five-year average of roughly $1.6 billion.  Activity has been led by Class A properties and a growing share of transactions above $20 million, with cap rates ranging between 5.2% and 5.7% in the urban core compared to a lower 5.0% to 5.3% range for suburban trades. Recent closings have occurred in Center City and Greater Center City, along the Main Line, and in suburban corridors such as Montgomery County, King of Prussia, and Phoenixville, where investors are targeting supply-constrained submarkets with durable renter demand.

Looking ahead

The Philadelphia market is currently experiencing its steepest supply wave in more than a decade, with annual completions on track to reach 9,500 units by the close of 2025. This influx may test operations, but fundamentals have remained resilient to this point, supported by steady job creation and a competitive single-family market that keeps many would-be buyers in the renter pool. Vacancy is expected to hover near current levels through the fourth quarter as absorption largely tracks deliveries, and rents are projected to post modest gains before showing more meaningful acceleration in 2026. The development pipeline is already easing, with construction starts having dropped sharply, signaling that this building cycle has likely peaked and that the pace of new supply growth should decline in 2026.

Transaction volume in Philadelphia’s multifamily market is expected to remain above longer-term norms through the remainder of 2025, supported by a solid pipeline of deals currently on the market or under contract. Buyers are increasingly underwriting to a 2026 environment marked by moderating supply, firmer rent growth, and improving net operating income performance as the current delivery wave is absorbed. A more favorable financing backdrop next year, as additional rate cuts materialize, could further expand the buyer pool and support pricing for well-located assets. Continued expansion in healthcare and life sciences employment, along with ongoing large-scale projects in University City and the Navy Yard, should reinforce renter demand and sustain transaction activity beyond 2025.

Learn more

Contact our Philadelphia office for more information.