Boston, we have a problem. More specifically it’s a development problem. We’re not building enough multifamily housing.
Boston is at the beginning of an unprecedented demographic wave and the strongest fundamentals we have seen in over a decade. With just under 4,000 units a year being delivered through 2016 and over 7,000 renter households being created annually over that same time period, we are not building enough units to meet this wave of demand.
The Boston multifamily market remains ones of the best performing markets in the country. As a result, institutional investors view the city as one of the top three most desirable markets, alongside New York and San Francisco. Their desire to deploy capital into Boston multifamily has resulted in unprecedented asset pricing and has stimulated new development throughout the region. Despite many high profile developments rising before our eyes, opportunities do exist, with many hidden in undersupplied pockets in the suburbs.
Relative to most other cities, Boston’s employment remained insulated through the downturn thanks in large part to a heavy concentration of jobs in healthcare, high-tech, and life sciences. These sectors weathered the recession fairly well, and have taken over for financial and legal services as the primary drivers of growth in our local economy. In fact, as of September 2012, Boston had regained all of the 103,000 jobs lost during the recession. This economic resilience, combined with a lack of new multifamily deliveries from 2009-2012, has caused metro-wide rents to grow by almost 15% from the last peak. Some especially strong submarkets have experienced growth of over 30%. Vacancy now hovers around 4%, indicating a short supply of quality product.
Boston is now on the front end of an unprecedented increase in demand for apartments due to improving renter demographics. Baby boomers are becoming empty nesters and their echo boomer offspring are beginning to form new households. Adding fuel to the fire, the median marriage age continues to rise and single-family credit remains tight.
What does this all mean? Watch for part 2 in the series.
-Michael and Travis