“Center City is coming off a record year in total construction completions in the downtown market, with 1,624 new units delivered in 2016, and absorption was strong in 2017,” Jacobs says. “1,257 units were absorbed this year, the highest in the market's history, which contributed to the nearly 300 basis point decline in vacancy year-over-year.”

Center City's asking rental rates increased to $2,185 per unit, a 1.4-percent increase from the fourth quarter of 2016 when the asking rate averaged $2,155 per unit. Despite the increase in asking rents, effective rents declined by 4.7 percent year-over-year to $2,018 per unit, down from $2,118 per unit a year ago.

Class A product also saw a 0.2-percent decline in asking rental rates in 2017, from $2,446 per unit year-end 2016 to $2,441 year-end 2017.

“While we expect construction activity to remain strong throughout 2018, look for a considerable dropoff by 2019 and 2020.” says Jacobs.

Despite the large amount of new construction projected to come online in 2018, vacancy is forecasted to increase by only 20 basis points and absorption is expected to remain positive with 3,143 units to absorb by year-end 2018. Both asking and effective rental rates are forecast to increase in the Philadelphia MSA by 3.5 percent and 2.6 percent, respectively.