Q4-2017-MultifamilyReport

Q4

2017

TOTAL VACANCY RATE

ASKING RENT $/SF

12-MONTH ABSORPTION

UNITS DELIVERED

CONCESSION (AVERAGE $)

MULTIFAMILY OVERVIEW

Boston’s Construction Wave is Coming In 2017, demand drivers impressed as both population and employment trends remained positive throughout New England’s largest metro areas. Greater Boston outperformed with the metro’s population base surpassing 4.8 million. The unemployment rate steadily declined during the second half of the year; falling below 3% in December, and expansions in the education, tech and life science industries continue to drive the Boston metro area’s economy. Steady job growth and continued migration toward urban and infill locations bode well for household formation in suburban towns surrounding the city. However, construction outside of the Route 128 loop has been more subdued this cycle. The market may see an increase in concessions as new units deliver in the coming quarters. With that said, construction starts dropped across many of the top markets in the U.S.; including Boston. saw vacancies climb to 4%. In the Springfield/ Worcester metro vacancies in Class A-/B+ assets ended the year at 2.8%. The construction pipeline in these markets is a drop in the bucket compared to Greater Boston. However, deliveries ticked up in 2017, with several hundred units coming on line in both Providence and Springfield/Worcester.

While this wave of new construction is beginning to weigh on effective rents, the area maintains some of the most expensive rental markets in the country. According to Zumper, the median rent for a one-bedroom unit was $2,400 per month and nearly $2,300 per month in Cambridge and Boston, respectively. Another data source, ABODO Apartments, ranks Cambridge the third-most expensive city to rent a one-bedroom apartment in the U.S. — behind only San Francisco and New York. While trends in the Providence and Springfield/Worcester metros tend to be more pedestrian than in Boston, multifamily fundamentals are just as positive. Vacancies remain well below 4% in both markets, demand drivers are solid and market rate asking rents continue to increase. Vacancies in Providence’s Class A+/A asset class inched up to 3.7% in the fourth quarter, and the Class A-/B+ market

Affordability, particularly in Boston, remains a key topic of debate.While the state has committed funds for affordable housing developments in Massachusetts, the recent H.R. 1 tax cuts and jobs act will certainly have an impact on the larger multifamily market. First, the impending decrease in corporate tax rates will likely drive down the value of Low-Income Housing Tax Credits, which will ultimately affect affordable housing construction. As a result, the demand for acquisition and rehab opportunities in the affordable housing space will likely grow and we can expect a consolidation of ownership in this market. Other potential impacts of this recent tax legislation include a decline in home prices, which could weigh on rental demand as renters opt for homeownership, and a temporary bump in value for owners of suburban, market-rate multifamily properties as these renters await a pricing correction in the single-family home market.

this market. Vacancies in the Boston metro’s Class A+/A asset class increased to 4.7% in the fourth quarter while the Class A-/B+ and Class B/B- asset classes posted vacancy rates of 4.1% and 3.6%, respectively. Nationwide, developers remain active in urban core locations; particularly in gateway cities like Boston. From 2015-2017, almost 20,000 market rate units have delivered in Greater Boston, which represents 13% of the metro area’s total apartment inventory. With another 11,500 units slated to complete in 2018, the inventory will expand by another 7.6%. Construction has been focused on East Boston, the Seaport and core

TOTAL VACANCY RATE

ASKING RENT $/SF

YTD ABSORPTION UNITS

UNITS DELIVERED (YTD)

ANNUAL CONCESSION (AVERAGE $)

3.40%

$2.17

2,881

7,473

1.5%

Population Growth: 0.3%

Population Age 20-34: 21.5%

Household Growth: -1.6%

Multifamily Permits: 8,940

Median Household Income: $71,336

Year-Over-Year as of 2017

As of 2017

Year-Over-Year as of 2016

30.2% Increase YTD as of December

Massachusetts as of 2017

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