Boston is at the beginning of an unprecedented wave of household formation creating the strongest fundamentals we have seen in over a decade. With just over 4,000 units a year scheduled to deliver 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 influx of demand.
The Boston multifamily market remains one of the best performing markets in the country. As a result, institutional investors view Boston as one of the top three most desirable markets with New York and San Francisco.
Their eagerness to deploy capital into Boston multifamily has resulted in unprecedented asset pricing, and has stimulated new development throughout the region. Institutional developers such as Hines, Jefferson Apartment Group, Mill Creek and Gerding Edlen have started their first projects in Metro Boston. Historically prolific developers in the area like AvalonBay, Hanover and Criterion have continued to build on their success.
Relative to most other cities, Boston’s employment remained insulated through the downturn thanks largely to a heavy concentration of jobs in healthcare, high-tech and life sciences. These sectors weathered the recession, and have surpassed financial and legal services as the primary drivers of growth in our local economy.
This economic resilience, combined with a lack of new multifamily deliveries from 2009-2012, has caused metro-wide rents to grow by almost 19% from the last peak. Some especially strong urban submarkets have experienced growth of over 30%. Vacancy now hovers around 4%, indicating a short supply of quality product.
Building on the diversified economy, Boston is on the front end of an unparalleled 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. These generations are driving the creation of over 7,000 rental households annually in eastern Massachusetts for the next four years.
Due to the imbalance of institutional demand and available product for sale, investors have introduced a “build-to-core” strategy. They simply can’t buy enough core multi-housing product, so they have invested in development.
Urban areas have been their focus. New luxury apartment towers are now starting to deliver across the city. Approximately 8,900 units of urban, institutional quality rental housing will be delivered through 2017.
This wave of development isn’t overzealous. Instead, it’s a long overdue transformation of Downtown Boston’s rental housing supported by exceptional demographics and the trend of urbanization. The majority of these urban deliveries will happen in 2015 and 2016.
Boston is not overbuilt. Demographics are in our favor like never before, and the composition of the development pipeline fits well with the urbanization trend. There isn’t enough quality multifamily product to meet the pent up demand of renters or investors.