The article “Philly’s Hottest Rental Neighborhoods in May” was originally posted on the Kwelia.com blog. Kwelia uses proprietary market data to build sophisticated statistical models to determine theoretical market values for specific units in specific areas based on their detailed characteristics; more details can be found on their website, and their interactive map of the Philadelphia rental market can be found here.
Philly’s Hottest Rental Neighborhoods in May, 2013
Lately, it seems as if neighborhoods have been all the rage here in Philly. Recent blog posts have been indicators of this trend. There was this one in Philly Mag that identified the hottest neighborhoods in Philadelphia based on home sale velocity. Then there was this one in Curbed Philly that highlighted up-and-coming neighborhoods according to the sentiments of RedFin agents. What was most interesting about these posts, was that the top neighborhoods were ones that we would least expect. So, although some of these lists included the “usual suspect” neighborhoods, there were several sleepers. For example, Phoenixville, Brewerytown, and West Germantown were the top three up-and-comers according to agent sentiment at RedFin. In the Philly Mag piece, Graduate Hospital (of all places) was dubbed the hottest.
As data geeks, these articles got us thinking. If Phoenixville is hot according to agent sentiment and Graduate Hospital is hot according to home sales, where is hot according to apartment rental pricing? Considering that we track this kind of stuff, we figured we would find out by ranking Philly neighborhoods according to apartment rental pricing. Some past experiences have indicated that heat maps are a great way to visualize pricing trends of different geographic areas. With that in mind, here are the results for the month of May (click image to get to interactive version of it):
Who’s Number One?
At a whopping $2.41 per ft2, Fitler Square was the priciest rental neighborhood in Philly for the month of May. While the neighborhoods of the top 10 are mostly the “usual suspects” as referred to above (Rittenhouse Square, Old City, etc.), this was a mild surprise. As for what could be behind this, we have a couple of theories. The first is what we’ll call the “Naval Square effect”. For those not aware, Naval Square is an upscale megaproject by Toll Brothers. Despite being a condo project, owners there list their units for rent from time to time. Now although Naval Square is technically a part of the Graduate Hospital neighborhood (according to our neighborhood shapes), it does border Fitler. This could mean that some Naval Square price observations are getting included in Fitler, which would give it a nice price boost. The other theory is that since Fitler has a high ownership rate, the quality of units there may be higher than other parts of town. We’ll continue to monitor Fitler and tweak things like the minimum number of units per neighborhood. Stay tuned for updates in a future post.
Our Up & Coming Neighborhoods
Although outside of the top 10, we thought it was worth noting that a couple of the Germantown neighborhoods are fairly highly ranked on the list. For example, Germantown – Westside came in at number 14 and West Central Germantown came in at number 18 for the month of May.
Though surprising to some non-Philly/Germantown folks, this may not even be a fresh trend based on other charts we have. Both of these neighborhoods have more or less held steady near $1.50 per ft2 for the past several months. One does wonder whether these neighborhoods are uniformly hot or whether certain complexes are single-handedly propping up rates? In otherwords, are a few upscale complexes responsible for a higher-than-normal median rent? A closer look at complexes like Rittenhouse Hill, or Delmar Morris, or Cloverly Park shows that median rents there are all well north of $1.50 per ft2. We’ll take a deeper dive into these neighborhoods and report back accordingly.
Leasing Season Is upon Us
As most real estate pros will acknowledge, May is actually the beginning of “leasing season”. From now until September, listing volumes and rental prices will be at their highest points for the calendar year. When considering academic calendars and weather patterns, this rhymes with common logic.
There are a couple of neighborhoods affected by leasing season that we thought it noteworthy to mention.
The first is University City, which went from number 5 in the (unpublished) April rankings ($1.86 per ft2) to number 12 in May’s rankings ($1.62 per ft2).Students typically sign and make new leases around this time of year, so it follows logically that apartments marketed towards students might be higher in April than May.We will keep you posted in how this neighborhood continues to trend.
The second one is Society Hill, which went from number 19 in April to number 9 in May. Like University City, seasonality may be a culprit here. In addition to a strong rise in median rental price, we saw more than double the number of listings in Society Hill from April to May. This is perhaps an indicator that a glut of leases in this neighborhood reset during this leasing season. We shall see.
Neighborhood Shapes – We were able to cluster our data in neighborhood shapes thanks to our friends at Azavea. We were certain to only include neighborhoods that had a minimum number of price observations, which might explain some holes in the map.
Unit of Measure – The unit of measure here is the median rental price per square foot per neighborhood. Although imperfect, we felt that the price per square foot was the best way to capture price levels across all unit mixes. In other words, it was the best way to do an apples-to-apples comparison across all neighborhoods because one may have a lot of one bedrooms or studios, etc.
Bias – Lastly, note that we were careful to minimize any bias that outliers would cause by using medians and not averages of pricing data.
In true startup fashion, we will continue to iterate our methodology to produce the best results for this. Stay tuned for future posts, as we will be reporting on neighborhood pricing movements on a monthly basis. This should get interesting!