Household formation, the primary driver for housing demand, is expected to strengthen to 1% for the next five to ten years. According to our multifamily team’s analysis, close to 7,000 new renter households will be created per year in the Greater Boston area, double the historical rate.
Due to the imbalance of institutional demand and available product for sale, investors have introduced a “build-to-core” strategy. They simply cannot buy enough core product. So instead they build it. This increased demand, coupled with a lack of existing product for sale, has sparked a new development wave that started downtown and is expanding into the suburban markets.
This is a distinct shift from the last development wave, which was largely funded by shorter term, build-and-sell capital sources. These investors demanded higher returns, and had a more difficult time withstanding short-term ups and downs in a very stable long-term market.
We at Jones Lang LaSalle has been closely tracking development trends. We divide the Greater Boston markets into three general categories:
• Urban – including Downtown, Back Bay, North Station, Seaport, and Fenway
• Outer Urban – defined by drawing a ring connecting the ends of the MBTA’s subways lines (not the commuter rail) and including close-in towns like Cambridge, Somerville, Medford and Quincy
• Suburban – covering anything further out from the city, generally ending at the towns on and around Route 495.
The last wave of multifamily development in eastern Massachusetts occurred primarily in the suburban ring along Route 128 as developers took advantage of Chapter 40B. Close to 22,000 units were built from 2004-2008, nearly 70% in the suburbs. This time is different, as only 20% of our current pipeline is suburban.
-Michael and Travis