Urban areas have been the overwhelming focus of developers over the last twelve months. New luxury apartment towers are now sprouting up throughout the city.. Approximately 7,800 units of urban, institutional quality rental housing will be delivered through 2016. This wave of development is not an overzealous rebound. It is a long overdue transformation of Downtown Boston’s rental housing, which is supported by exceptional demographics and the well-documented trend of urbanization.
Our outer urban ring represents approximately 4,000 units of new development, just under half of which is located in Cambridge. Proximity to the city and convenient access to the subway gives these properties the ability to lease at a small discount to urban rents, but with a more suburban construction cost structure (generally wood-frame with a lack of structured parking).
Only two deals in our urban pipeline are stick-built. The rest are steel or concrete due to their high-rise construction. Outer urban is the complete opposite, with only three deals requiring steel or concrete construction. Recently delivered high end properties, such as Maxwell’s Green in Somerville (developed by Gate Residential), are now achieving rents north of $3.00 psf.
In response to the lack of suburban deliveries over the past four years, we have seen the suburban pipeline grow to almost 3,000 units, most of which are currently under construction. Much of this suburban development is inside or along Route 128/95, with the majority located north of Boston between the spokes of Route 2 and Route 1. This reflects the attractiveness of the corridor and the difficulty permitting sites elsewhere in the suburbs.
There are few suburban submarkets that face potential oversupply. Many towns have reached their required 10% affordability under 40B, limiting the pipeline in desirable suburbs such as Bedford, Burlington, Lexington and Lynnfield. In response, interest from institutional equity sources is growing for the right suburban project.
Boston is not overbuilt. Demographics are in our favor like never before, and make-up of the development pipeline fits very well with the urbanization trend. There isn’t enough quality multifamily product to meet the pent up demand of renters or investors, and capital allocations are driving more and more institutional equity into the top few real estate markets. Our unrivalled educational institutions will continue to attract the top intellectual capital in the world. Now we finally have the modern housing and 24-hour lifestyle necessary to retain our graduates for the long run.
We feel strongly that Boston area multifamily will continue to thrive.