market report…market report year end | 2019 303 congress street | boston, ma 02210 | 617.457.3400...

METRO BOSTON MULTIFAMILY MARKET REPORT

YEAR END | 2019

303 CONGRESS STREET | BOSTON, MA 02210 | 617.457.3400 | HUNNEMANRE.COM

2 | METRO BOSTON MULTIFAMILY | YEAR END 2019

BOSTON MARKET MULTIFAMILY OVERVIEW

The Greater Boston Multifamily Market ended the decade as the nation’s third

most expensive with a much needed supply injection taking place in 2019 to

help mitigate rental growth. Over the last year, vacancy rates have ticked up to

5.4% due to this jolt in supply whereas rental growth has remained relatively

static across the region, sitting at an average of $2,359 per month. Nevertheless,

Greater Boston has shown strong economic growth relative to the rest of

the nation and rents are expected to reach new heights in 2020 as the region

continues to attract employees and companies alike from around the globe.

Fueled by the influx of healthcare, technology, and life science companies,

Greater Boston’s unemployment rate sits well below the national average at 2.6%

with a population base that is nearing 5 million people.

From a supply standpoint, market rate deliveries reflect an increase in demand

for luxury units. As the decade came to an end, developers completed an

additional 4,300 units in the fourth quarter alone. Notable completions such

as NEMA Boston and Hub 50 House each delivered 400+ luxury units to the city

of Boston, with average rents surpassing $3,500/unit. Unsurprisingly, much of

the construction in Greater Boston has been concentrated in the urban core,

Cambridge, and inner suburbs. Specifically in Boston, there is a continuation

of new activity in the Seaport and North Station neighborhoods where average

rents command $3,800/unit and $3,500/unit respectively. In total, 2019 deliveries

reached 7,455 units which is a 9.4% increase from 2018.

The increase in demand for luxury units can be best explained by several key

factors: the millennial generation entering their prime renting ages, the influx of

high paying jobs, and foreign migration primarily lead by a prevalent international

student population. However, it is also imperative to note that increasing land

acquisition and construction costs have impelled developers to popularize class

A properties for better returns. Since 2016, the split between class A and class

B/C units in the Greater Boston market has tightened from 45%-55% to nearly an

even split. In the coming years, expect to see class A units claim the lion’s share

of inventory.

While Boston is experiencing one of its greatest building booms, affordable

housing continues to be a crisis point. The consensus between developers and

city officials is that increasing the supply will help alleviate high rental rates.

However, the market has yet to soften despite the significant influx of supply in

2019. To combat this, Governor Charlie Baker has signed and asked legislators to

approve a Home Rule Petition which would require developers to either include

income-restricted housing in large new developments or pay a hefty fee. These

development fees would be strictly regulated by the city. In addition, potential

impacts of the Air-BnB legislation that became effective in August will likely cause

1/3 of all active listings to be dropped from the platform. While this could lead to a

slight uptick in supply if some tenants are unable to maintain rent due to the lack

of cash flow from Air-BnB, this is not expected to have a major effect on the market.

5.4%

TOTAL VACANCY RATE

$2.67 ASKING RENT

($/SF)

6,185ABSORPTION UNITS

(YTD)

7,455UNITS DELIVERED

(2019)

19,500UNITS UNDERWAY

(2019)

UNDER CONSTRUCTION (UNITS)


MARKET RATE

TOTAL INVENTORY(UNITS)

TOTAL VACANT(UNITS) TOTAL VACANCY RATE YTD NET ABSORPTION ASKING RENT

($/UNIT)

Urban Boston 51,355 2,748 5.5% 1,829 $3,049

Cambridge 11,171 506 4.5% 520 $3,110

Route 128 87,740 4,518 5.2% 2,543 $2,206

Route 495 47,177 2,660 5.6% 1,159 $1,791

Total 198,710 10,654 5.4% 6,185 $2,359

• Greater Boston remains to be one of the most expensive rental markets in

the nation. Due to its dense population, limited airspace, and notorious

barriers to development, Boston has consistently ranked in the top 5 for

most expensive rental markets. Rents across the metro have continued

their upward pace. Units in the Back Bay are surpassing $4,300/unit

while Seaport and North Station boast average rents in the mid to upper

$3,000s/unit.

• The Greater Boston multifamily market ended 2019 with a grand total

of 198,700 units of inventory. Despite timely project approvals and stiff

construction costs, annual inventory growth has jumped 3.2%, almost

doubling the national average of 1.7%. In congruence with other metros,

most of the developments have sprouted from urban neighborhoods with

immediate access to public transit.

• There are currently 19,500 market rate units underway in the Greater

Boston multifamily market. Of these units, 86% are class A properties that

are expected to deliver in the years 2020 and 2021. The top three largest

projects, which include 700 units at Vero, 610 units at The Abby, and 600

units at The Smith, are all located in Urban Boston and the Inner Suburbs.

• The uptick in year end vacancy rate can be attributed to the surge in

deliveries at the end of the decade. Even so, vacancy rates should remain

relatively stable in the coming years as rising demand will balance

the market’s supply line. Neighborhoods along Routes 128 & 495 yield

the most stable rates while Urban Boston & Cambridge have seen

greater fluctuations due to heavy construction activities. Most notably,

Cambridge’s vacancy rate dropped from 8.8% in the second quarter of

2018 down to its current 4.6% rate.

• Multifamily sales in the Urban Boston, Cambridge, and Inner Suburbs

have been dominated by small-property deals as of late which could put

upward pressure on rents as buyers attempt “flip” for higher yields. Of the

55 multifamily sales in 2019, 73% of the exchanges came in properties

with 50 units or less. With vacancies for Class A and B multifamily space

at just 6.3%, developers and investors are seeing more opportunities for

smaller developments and redevelopments as construction and land

costs have reached record highs across the metro.

TOTAL VACANCY

RENTS

UNITS COMPLETED

2015 2016 2017 2018 201919 QTD

BOSTON/ CAMBRIDGE ROUTE 128 ROUTE 495

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2015 2016 2017 2018 2019

CLASS A CLASS B/C


AFFORDABLE RATE

TOTAL INVENTORY(UNITS)

UNITS COMPLETED(2015-2019)

EXPECTED COMPLETIONS(2020)

Urban Boston 17,468 865 92

Cambridge/Inner Burbs 7,926 186 226

Route 128 21,215 496 -

Route 495 14,431 220 189

Total 61,040 1,767 507

• In years past, affordable housing developers had to meet one of two set-

aside tests in order to qualify for LIHTCs: 20% of their units have to be

offered at 50% Area Median Income or 40% of their units have to be offered

at 60% AMI. Now, under the new income averaging law, developers can

also qualify for tax credits if the average of the building’s imputed income

limitation does not exceed 60% AMI, allowing for a greater variety of unit

mix and more opportunities to obtain these coveted tax credits.

• Pricing on 4% and 9% Low Income Housing Tax Credits are beginning

to make a comeback since they dropped below $1 per credit at the

beginning of 2017. National pricing trends have shown an increase

from $0.92 to $0.95 per credit since March 2019, and credits on deals in

the Metro-Boston area are consistently being priced between $0.95 and

$0.98 per credit, thus providing more equity and increased incentives for

affordable housing developers.

• “The Watson”, one of WinnCompanies’ most anticipated developments,

finished construction in November, adding 140 mixed-income units to

the City of Quincy. This development has been awarded ULI’s Terwilliger

Center for Housing’s 2019 Jack Kemp Excellence in Affordable and

Workforce Housing Award for their inclusion of 86 “middle-income” units

offered to individuals whose incomes are too high for traditional housing

subsidies but too low to afford rising market rate rental costs.

• International developer Lendlease recently completed the 478-unit,

550,000 square foot “Clippership Wharf Apartments” in East Boston on

the Boston Harbor. This four-year project took advantage of 4% and 9%

LIHTCs, and pre-sold all 80 of the development’s condominiums before

completion in late September. WinnCompanies is set to complete a 104-

unit, 107,000 square foot mixed-income development known as “The

Residences at Brighton Marine” on Commonwealth Avenue in Brighton

by the end of December. Units will be offered with preference for veterans

and military families, and 11 units will be set aside for formerly homeless

veterans.

AMI INCOME LIMITS | MA

FAIR MARKET RENTS

UNITS COMPLETED

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

1 Person 2 Person 3 Person 4 Person 5 Person 6 Person 7 Person 8 Person

EXTREMELY LOW VERY LOW LOW

$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$2,800

Studio 1-Br 2-Br 3-Br 4-Br

2016 2017 2018 2019

0

300

600

900

1,200

1,500

1,800

2,100

2016 2017 2018 2019

BOSTON CAMBRIDGE SUBURBS


• With total sales volume at $3.2 billion, Greater Boston’s multifamily market

was thought to have reached its cyclical peak in 2015. From 2016-2018,

average sales volume dropped 17% from peak figures, as all-time high

prices signaled a weakening market for investors. However, 2019 beat all

expectations, crushing 2015 by 24%. The market experienced a strong

surge in activity during this year’s fourth quarter when sales volume

topped $1.44 billion. Most notably, the 1,385 unit Overlook Ridge Portfolio,

bought by Rockpoint Group, exchanged for $411 million at $297,000 a

unit, making up a third of the quarter’s exchanges. In aggregate, 2019

sales volume crept north of $4 billion, trading at an average of $373,000/

unit.

• Since 2016, average cap rates have remained sub-5%, including this

quarter’s 4.6% rate. Lower cap rates can be explained by the increase

in exchanges of highly coveted luxury units. For instance, The Girard,

Watermark Seaport, and Tower at Greenland, all Class A assets located in

the urban core, sold for sub-4% yields in the past few years. With cap rates

compressing, investors have looked to the 495 belt when looking for cap

rates above 5%. To that extent, route 495 sales volume grew by 133% from

2018 while urban sales volume remained relatively stable.

TOP 2019 / INVESTMENT SALES

OVERLOOK RIDGE PORTFOLIOREVERE

624 WALPOLE STREETNORWOOD

CHARLES RIVER LANDINGNEEDHAM

WATERSIDE PLACEBOSTON

Buyer Rockpoint Group Buyer UDR Buyer UDR Buyer GID Investment Advisers

Units 1,385 Units 914 Units 350 Units 236

Sale Price $411,500,000 Sale Price $270,000,000 Sale Price $172,000,000 Sale Price $154,000,000

UNITS SOLD(#)

MEDIAN CAP RATE YTD SALES VOLUME($)

14,587 4.6% $4.04B

SALES VOLUME

MEDIAN PRICE

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

2015 2016 2017 2018 2019

Mill

ions


$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

BOSTON/ CAMBRIDGE ROUTE 128 ROUTE 495Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019

CAPITAL MARKETS

303 CONGRESS STREET | BOSTON, MA 02210 | 617.457.3400 | HUNNEMANRE.COM

METHODOLOGY

Source: Co-Star, Hunneman. Prepared: February 2020.

Disclaimer: The above data is from sources deemed to be generally reliable, but no warranty is made as to the accuracy of the data nor its usefulness for any particular purpose.

Average Rental Rates are asking rents on direct space. Vacant space includes both direct and sublease space.

TUCKER WHITE Director of Research

978.828.5141 [email protected]

JAMES FIFTALSenior Research Analyst

[email protected]

market report…market report year end | 2019 303 congress street | boston, ma 02210 | 617.457.3400...

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