Terrence Scott, ARA
The Boston apartment market ranked among the nation’s top cities for revenue growth throughout much of 2013 and 2014. Apartment developers took note of the region’s strong revenue performances and construction levels ramped up, reaching over 7,000 units during the past four quarters. Construction has remained elevated and supply volumes have increased, but not outpacing demand of more than 8,000 units per year.
The new luxury apartments provide a lifestyle that is very attractive and, in many cases, comparable to condominium living for would-be buyers who are now renting when faced with few options for buying the limited supply of new condominiums. Luxury apartments offer an excellent alternative and a lifestyle experience that is more akin to condo living than what previous rental buildings offered. Boston has needed new rental inventory for some time now, given that 60 percent of the existing apartment inventory was built prior to 1980.
Many of the new luxury buildings feature condo-style finishes, state-of-the-art amenities and services, windows that open, high ceilings, and updated systems. These new buildings also offer a greater variety of floor plans that better address the needs of millennials and professionals who are flocking to downtown Boston for jobs and social activities.
As one would expect, Boston rents have skyrocketed in recent years and are now averaging over $4.50 per square foot for luxury units with some high-end units renting in the $8-per-square-foot range. Clearly though, the high rents have not dampened demand as occupancy levels continue to hold steady in the 97 percent range for stabilized properties. Outside of the city, extending to the 495 beltway, more than 8,000 units are anticipated for delivery in 2015 and 2016 with rents for the new properties projected to average between $2.50 and $3.50 per square foot while current occupancy levels are very tight in the 98 percent range.
Although there is concern from some quarters about overbuilding, the consensus is that inventory expansion should be manageable in light of the outstanding job growth trend both in and around the city. Most of the new construction is concentrated in a few spots, particularly the urban core area that includes Boston’s Seaport Innovation district. The Seaport initiative to transform 1,000 acres of the South Boston waterfront into an urban environment is progressing rapidly. The area is nestled between Boston’s financial district and transportation gateways, offering excellent access to Logan International Airport. It is also home to the Boston Convention Center as well as many biotech firms, including the rapidly expanding Vertex Pharmaceuticals, which recently moved from Cambridge to its new 550,000-square-foot world headquarters. More than 5,000 new jobs in more than 200 new companies have been created with technology companies contributing 30 percent of the job growth and Genentech + life sciences adding 16 percent of new jobs in these sectors. An additional 4,000 new jobs are projected in the next few years for the Seaport area, alone.
The outlook for Boston looks very bright for the multifamily industry as the trend for better quality rental housing development continues to provide more opportunities for people to live and work in the city. Recent polls indicate that a higher percentage of young graduates from the 136 colleges and universities in Massachusetts plan to stay and work in the Boston area than ever before!
— By Terence Scott, Senior Vice President, ARA. This article first appeared in the November/December 2014 issue of Northeast Real Estate Business magazine.