The coronavirus appears to be driving down rents at the Philadelphia area’s biggest apartment buildings, especially new ones, as the pandemic begins restricting the shopping — and threatening the livelihoods — of potential home-hunters.

Rents at apartment buildings opening since January 2019 with more than 100 units have declined by 0.5% to $2.26 a square foot between the first and last days of March, according to calculations by The Inquirer, using data from real-estate tracker CoStar Group. For an apartment of 890 square feet, the region’s average size, last month’s decline equates to a monthly rent drop of $10.30, to about $2,013 a month.

Rents at similarly large apartment buildings in metro Philadelphia opening before 2019 fared a little better, holding steady over that time at $1.56 a square foot, or about $1,392 a month for an 890-square-foot unit. But that still falls far short of the 0.4% rent increase seen every past March since 2017.

The health crisis coincides with a massive increase in new inventory in the region. Last year, developers brought to market 4,771 new apartments in buildings with more than five units. That’s down from the previous two years, but still more than any year before those since at least 1982, the earliest date for which CoStar data were available.

Growth has continued, with 2,239 new units coming to market so far the first three months of this year, the third biggest quarterly increase on record.

Landlords are now left to compete with one another to fill these vast blocks of empty space in their newly opened properties, said Adrian Ponsen, CoStar’s analytics director for Philadelphia.

“If you have had your eye on a newly built apartment building in your neighborhood, the next few months will be an excellent time to call and negotiate a lease,” Ponsen said. "Landlords will be offering the most competitive rents they can.”

» FAQ: Your coronavirus questions, answered

But Ponsen said owners of older, already-occupied buildings have for now been able to maintain rent levels when tenants renew their leases.

“The best thing landlords have going for them right now is higher-than-average renewal rates: people are just staying in place,” he said. “But if you are a new building that just delivered, you obviously don’t have as many tenants to renew.”

The Crane Chinatown Apartment building at 1001 Vine St.
STEVEN M. FALK / Staff Photographer
The Crane Chinatown Apartment building at 1001 Vine St.

Apartment developers have also in recent years concentrated on building upmarket homes — known in the industry as “Class A” properties — so they can charge rents that maximize returns on their high construction costs. Such properties may now struggle to retain occupancy as the pandemic weakens the economy, the Kroll Bond Rating Agency said in a report this month.

“As the economic impact from COVID-19 has left many residents unable to work, landlords expect residents will have trouble paying rent in the months ahead,” Kroll’s analysts wrote. “Tenants who occupy Class A properties may choose to move into [lower-end] Class B properties in order to cut rental payments.”

CoStar’s rent data come from owners and property managers of 814 apartment buildings comprising more than 100 units each in an area spanning most of Southeastern Pennsylvania, as well as parts of South Jersey, Delaware and Maryland who market their properties through the company’s Apartments.com subsidiary.

The company tallied 26 projects opening since Jan. 1, 2019, housing 5,702 apartment units spread among Philadelphia, Montgomery, Chester and Delaware Counties, as well as Camden and Burlington Counties and Wilmington.

Philadelphia projects make up eight of those properties, comprising 1,460 units, 32% of which were vacant as of April 2, when CoStar’s data were compiled.

CoStar declined to share individual properties’ vacancy figures for publication. But another real-estate data firm, Delta Associates, listed five Philadelphia apartment buildings as less than half-leased as of the end of 2019 in its most recent quarterly report on the city’s rental market.

Those projects are the 198-unit first phase of Dwell on Second Street, at Second and Thompson Streets north of Northern Liberties, which was 93 percent unleased; the 216-unit View at Old City at Fourth and Race Streets, which was 63 percent unleased; and the Irvine, on 52nd Street south of Baltimore Avenue, and Crane Chinatown, at 10th and Vine Streets, which were both nearly 60 percent unleased.

Elsewhere in metro Philadelphia, but outside the city itself, CoStar tallied 18 new apartment projects, comprising 4,242 units, 54 percent of which remained empty.

Delta does not track projects outside Philadelphia’s city limits, so it’s difficult to pinpoint which buildings have the most space to fill, but some of the fiercest competition for tenants is likely to be in and around King of Prussia along Route 202, where much of the new inventory was built.

The township itself is home to the newly opened 342-unit Hanover King of Prussia apartments near the Town Center shopping complex and the 248-unit Skye 750 project near the Valley Forge Casino Resort. About seven miles to the northeast is the recently opened 261-unit Residences at Bentwood in East Norriton, while the 244-unit Arlo Apartments sit about eight miles to the west.

The Hanover King of Prussia apartments near the Town Center shopping complex.
Hanover
The Hanover King of Prussia apartments near the Town Center shopping complex.

Even before the seriousness of the pandemic became apparent, commercial real estate firm JLL noted in a research report that vacancy rates in newly built suburban apartment buildings were twice as high as those in older ones, with thousands of new units on the way.

“The question is whether absorption can keep pace after such a significant jump in supply,” JLL’s analysts wrote in the report.

Holly Henning, leasing manager at the Residences at Bentwood, which was developed by Tornetta Realty Corp. and the Altman Group, said the property is still more than 90% vacant after opening near the end of last year.

But two new tenants have recently signed leases at the complex after being shown the property remotely with video-chat applications such as FaceTime and Google Duo, since in-person tours are now prohibited, she said.

“The convenience of them being able to do a virtual tour from their couch, people are really loving that,” she said.

Lo Romero, vice-president for marketing at Arlo-owner LCOR, said in an email that her company was promoting that property "in a socially distanced manner. ... This creativity has included everything from filming mobile steady-cam footage of all of our spaces and conducting tours virtually through Instagram Live and Zoom.”

But even if landlords have found ways to remotely market their properties, they may still struggle to get potential tenants excited about the fancy gyms, outdoor grilling stations, dog runs, and other accoutrements that once served as a major enticement, CoStar’s Ponsen said.

Developers invested heavily in such features, which now sit empty due to measures aimed at stemming the spread of the coronavirus.

“How interested are you in moving into a building with a heightened amenity set when you’re not necessarily going to be able to use the gym or the game room over the next few months?” Ponsen said.