Boston, like many of its northeastern peer markets, is known for its older apartment stock and higher percentage of single-family homes compared to secondary markets in the south and west. However, as the market is known for innovation, it’s apartment market has grown and evolved quickly over the past few real estate cycles. Rent and operating metrics have performed well over the past year, outpacing the rest of the nation that is currently slowing down from historic highs. Gateway markets are often the first to recover, and Boston is once again leading the way, as most of the nation remains mired in a slog of weak apartment fundamentals.
Boston is one of the few markets performing well, as annual net effective rent (NER) growth sits just below three percent. By comparison, the national average NER fell roughly two percent over the past 12 months. While outmigration continues to have a negative impact on demand in the northeast, the new supply pipeline in Boston is well balanced, and there is limited pressure from new deliveries overall. Boston will continue to attract young students as well as highly educated professionals in the financial, tech, life sciences and academic industries.
Traffic and Leasing
Demand in the northern Gateway markets has been waning for a number of years, as outmigration to southern and western metros has driven overall population decline. However, apartment markets like Boston have managed softer demand well.
The MSA averages seven tours per property per week, roughly 1.5 tours below the national average. Yet despite the lower traffic, properties still signed nearly 2.5 new leases per week. Boston’s conversion ratio of 34% outpaces the national average.
Urban submarkets are seeing the most traffic as Jamaica Plain/Dorchester and Cambridge/Watertown/Waltham lead the metro with more than 9 tours per property per week. They also lead the metro with 3 new leases signed per property each week.
The North Shore/Merrimack Valley submarket has the lowest traffic and lease rate in the metro as demand is soft north of the city. However, the submarket is holding its own from an efficiency perspective as the conversion ratio is 47%.
I anticipate suburban and rural outmigration to continue in the Northeast, however urban core submarkets will maintain their strength.
Despite dropping 71 basis points over the past year, Boston’s occupancy rate of 94.72% makes it one of the highest in the country. The metro is also leasing well as the leased percentage is 96.44%.
The North Shore/Merrimack Valley submarket has the highest occupancy in the metro and while demand remains low, the submarket is showing signs of stability.
From a growth perspective, the Central City/Back Bay/Beacon Hill submarket as well as the Jamaica Plain/Dorchester submarket are thriving. Both submarkets have posted annual occupancy growth, a feat very few submarkets nationwide can claim.
Boston’s overall ATR is just under the national average, as the metro maintains 13 apartments available to rent per property over the next 60 days.
Gateway markets historically have tighter occupancy than southern and western secondary markets, and after losing occupancy during COVID and failing to experience the growth seen in secondary markets in 2021, Boston and its Gateway peers are once again leading the country.
Average net effective rent in Boston is $3,072 making it one of the top 3 most expensive markets in the nation, trailing only New York and San Jose.
It is also one of the fastest growing markets, as rents are up 2.9% on an annual basis.
The urban core is driving growth as the Downtown/Back Bay/Beacon Hill and Jamaica Plain/Dorchester submarkets lead the MSA in rent growth.
Only one submarket, the west/northwest suburban submarket is registering rent declines on an annual basis.
Short-term rents are up as well. Monthly gains have been made across the metro, as of mid-August, a good sign leading into the busiest time of year for unit turnover. Based on Boston’s large population of university students, and the historical precedent that leases start September 1, Boston may have the most active unit turnover period in the nation.
Concessions are improving as well. The average concession across the metro is $22 per month, which given the overall cost of rent in Boston, is a very small figure.
Like many other Gateway markets, Boston’s resurgence is strong and steady.
The new supply pipeline in Boston remains well balanced. There are currently 99 projects under construction across the metro. Projects in planning phases total more than 350, yet many of these projects will be delayed or fail to come to fruition as increasing interest rates have made it harder to pencil new development.
New construction is mostly concentrated inside 128, with significant new building in Boston, but also Everett, Revere, Brookline, Cambridge, Allston, Quincy and Braintree. One off projects are being built in the suburbs as well.
If you consider the projects in planning, the suburban pipeline gets far more robust. Smaller cities including Brockton, Lowell, Framingham and Salem have a number of projects in planning, but limited current construction.
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