multifamily report
TRANSCRIPT
303 Congress Street Boston, MA 617.457.3400 www.naihunneman.com 1
MULTIFAMILYMARKETHOLDS STEADY
303 Congress Street | Boston, MA 02210 | 617.457.3400
www.NAIHunneman.com
MARKET RATE
AFFORDABLE RATE
CAPITAL MARKETS
Q3 2017 MULTIFAMILY
M E T R O B O S T O N
INSIDE STATISTICS...
Committed to Boston, Connected to the World.2
Boston’s Construction Wave is ComingThis year, 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 turned a corner in September after remaining elevated above 4% for several months, 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 this market. Vacancies in the Boston metro’s Class A+/A asset class declined to 4% in the third quarter while the Class A-/B+ and Class B/B- asset classes posted vacancy rates of 3.8% and 3.6%, respectively.
Despite some upward pressure on vacancies due to new construction, rent trends remain positive here. As of the third quarter, Greater Boston asking rents increased by 1.9% compared to year-ago levels. At close to $2.40 per square foot, average effective asking rents in Greater Boston command an almost $0.90 per square foot premium over rents
in Providence and the Springfield/Worcester metro areas. Despite starting at a lower basis, lease rates in these tertiary markets continued to climb throughout the year as well.
On the supply-side market rate construction has been concentrated in Greater Boston, with more than 5,300 units delivering in 2016. Developers have been focused on East Boston, the Seaport and core suburban towns surrounding the city. Expected completions for 2017 in Greater Boston are roughly 10,000 units, which will likely cause vacancies to increase modestly. The market may also see an increase in concessions as new these units deliver in the coming quarters. With that said, construction starts dropped across many of the top markets in the U.S.; including Boston. Affordability, particularly in Boston, remains a key topic of debate. While uncertainty around federal low-income housing tax credits and a retrenchment in financial commitments among investors earlier this year threatened to limit new affordable housing projects, the state has committed another $100MM in funding for affordable housing developments across Massachusetts.
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 ended the third quarter at just 2.9%, while the Class A-/B+ market saw vacancies climb to 3.5%. The construction pipeline in these markets is a drop in the bucket compared to Greater Boston. However, deliveries are slated to pick up this year, with several hundred units expected to come online in both Providence and Springfield/Worcester.
Nationally, multifamily has become a favored asset class among investors. With that said, preliminary third quarter data from Real Capital Analytics shows that apartment investment creeped up by 4% year-over-year, but has declined by 9% year-to-date. While overall transaction volume remains depressed at a macro level, activity in Greater Boston’s multifamily market continued to surge during the third quarter, with roughly $1.5B in assets changing hands metrowide.
Population Growth:
4% Year-Over-Year as of 2016
Population Age 20-34:
21.5% As of 2016
Household Growth:
-1.6% Year-Over-Year as of 2016
Multifamily Permits:
5,603 56% Increase YTD as of August
Median Household Income:
$71,534 Massachusetts as of 2016
2017
MULTIFAMILY OVERVIEW
CONCESSION (AVERAGE $)
UNITS DELIVERED
12-MONTH ABSORPTION
ASKING RENT $/SF
TOTAL VACANCY RATE
TOTAL VACANCY RATE
ASKING RENT $/SF
YTD ABSORPTION UNITS
UNITS DELIVERED(YTD)
ANNUAL CONCESSION (AVERAGE $)
3.20% $2.16 1,295 4,194 3.9%
Q3
303 Congress Street Boston, MA 617.457.3400 www.naihunneman.com 3
UnitsCompleted
*Expected
Boston Providence Springfield/Worcester
0
2,000
4,000
6,000
8,000
10,000
12,000
2012 2013 2014 2015 2016 2017*
Boston Providence Springfield/Worcester
Rents
$0
$500
$1,000
$1,500
$2,000
$2,500
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
Boston Providence Springfield/Worcester
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Boston Providence Springfield/Worcester
Rents
$0
$500
$1,000
$1,500
$2,000
$2,500
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
Boston Providence Springfield/Worcester
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Boston Providence Springfield/Worcester
RENTS
VACANCY
UNITS COMPLETED
TOTAL INVENTORY
(UNITS)
TOTAL VACANT (UNITS)
TOTAL VACANCY
RATE
Q3 NET ABSORPTION
YTD NET ABSORPTION
ASKING RENT ($/SF)
Boston Metro 149,150 4,773 3.2% 128 1,848 $2.39
Providence Metro 25,769 850 3.3% (60) 57 $1.52
Springfield/Worcester Metro 24,951 674 2.7% (691) (610) $1.51
TOTAL 199,870 6,297 3.2% (623) 1,295 $2.16
TRENDS
• Despite new construction, vacancies are generally trending down across the region. On the whole, rates ended the third quarter just above 3%, with Springfield/Worcester boasting the lowest vacancies.
• While Boston remains one of the most expensive rental markets in the country, lease rates declined for two straight months during the third quarter; according to data from Yardi Matrix. Other data sources have been reporting similar trends, with vacancies declining on a year-over-year basis as well.
• Boston’s high apartment rents are pushing renters to relocate to more affordable locales. According to Apartment List, large percentage of renters surveyed in Boston plan to move to another city due to affordability. The survey revealed Providence as the top spot for relocating Bostonians.
• CoStar recently ranked Boston as the 6th-most active market for apartment construction. A few of the most recent projects to break ground include the 177-unit Hood Business Park residential development in Charlestown, Trammell Crow Residential’s 178-unit Alexan Billerica in Billerica and Crescent Heights’ 414-unit apartment complex at 399 Congress Street in the Seaport.
• East Boston’s booming housing market is about to get another residential development. Gate Residential Properties is planning a 300-unit development across two buildings along the Blue Line.
• Vacancies in the Providence metro remain elevated compared to year-ago levels, ending the third quarter at 3.3%. Recent deliveries include the 144-unit US Rubber Lofts on Eagle Street in Providence.
• While multifamily development is limited in the Springfield/Worcester metro area, a handful of projects are currently underway in the market. 145 Front @ City Square (237 units) and The Lofts at City Place (51 units) represent the largest projects.
MARKET RATE MULTIFAMILY
*Expected
Committed to Boston, Connected to the World.4
TRENDS
• Governor Baker recently announced plans to boost the state’s affordable housing stock with an additional $100MM in funding. Housing subsidy funds, federal HOME funds and state capital funds will account for $72MM, while $28MM will come from state and federal low-income housing tax credits. Overall, 25 projects throughout the state will receive a portion of this funding.
• Armory Street Partners is planning to develop 353 units (218 market rate and 135 affordable) multifamily units next to the Armory Street Apartments in Roxbury as well as renovate the existing 199-unit affordable building.
• MassDevelopment has issued $9.4MM in bonds for Urban Edge’s 49-unit Walker Park development in Eagle Square.
• Construction recently began on WinnDevelopment’s The Watson; a 140-unit mixed-income apartment in Quincy. MassHousing recently closed on $37.2MM in financing to support the development.
• Preservation of Affordable Housing and Nuestra Comunidad Development Corp. is planning a mixed-income apartment building with 135 units in Mattapan Square, financed through federal low-income tax credits.
• The BHA selected WinnDevelopment to redevelop the largest public housing development in New England; the Mary Ellen McCormack site. The new mixed-income project will include 3,000 new units, which will include workforce housing, market rate units and condos.
• MassHousing also closed on $22.5MM in financing to Beacon Communities LLC. The developer is planning to rennovate and preserve affordability at the 156-unit Stratton Hill Park building in Worcester.
AMIIncomeLimits-MA1-person2-person3-person4-person5-person6-person7-person8-person
FairMarketRents
$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
$500
$1,000
$1,500
$2,000
$2,500
Effeciency 1-Bed 2-Bed 3-Bed 4-Bed
Boston Providence Springfield Worcester
AMI INCOME LIMITS - MA
FAIR MARKET RENTS
UnitsCompleted
201420152016
2017*
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016 2017*
Boston Providence Springfield/Worcester
AMIIncomeLimits-MA1-person2-person3-person4-person5-person6-person7-person8-person
FairMarketRents
$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
$500
$1,000
$1,500
$2,000
$2,500
Effeciency 1-Bed 2-Bed 3-Bed 4-Bed
Boston Providence Springfield WorcesterUNITS COMPLETED
2017
AFFORDABLE RATE MULTIFAMILY
TOTAL INVENTORY
(UNITS)
UNITS COMPLETED
(2012-16)
EXPECTED COMPLETIONS
(2017)
Boston Metro 63,593 2,151 198
Providence Metro 24,414 148 116
Springfield/Worcester Metro 21,063 496 -
TOTAL 109,070 2,795 314
*Expected
Q3
Committed to Boston, Connected to the World.6
90 90
91
91
495
195
495
190
495
95
93
9595
95
395
395
84
8495
295295
89
89
95
95
91
91
91
95
195
290
90
90
90
495
495495
495495
RENT MAPM E T R O B O S T O N
2017
AVERAGE BY CITYQ3 2017Source: Yardi Matrix
$2,280 or more
$1,620 - $2,280
$1,190 - $1,620
$640 - $1,190
$640 or less
Q3
303 Congress Street Boston, MA 617.457.3400 www.naihunneman.com 7
MULT IFAMILY INVESTMENT TEAM
M E T R O B O S T O N M E T R O B O S T O N
MARKET RECAP
MARKET RATETOTAL INVENTORY
(UNITS)
UNDER CONSTRUCTION
(UNITS)
TOTAL VACANT (UNITS)
TOTAL VACANCY RATE
Q3 NET ABSORPTION
(UNITS)
YTD NET ABSORPTION
(UNITS)
ASKING RENT ($/SF)
Boston Metro 149,150 12,590 4,922 3.2% 128 1,848 $2.39
Providence Metro 25,769 1,603 850 3.3% (60) 57 $1.52
Springfield / Worcester Metro 24,951 829 749 2.7% (691) (610) $1.51
MARKET RATE TOTAL 199,870 15,022 6,521 3.3% (623) 1,295 $2.16
ELLIOTT WHITEAssistant Vice President
GINA BARROSOAssistant Vice President
IAN MCKINLEYSenior Associate
CARL CHRISTIEExecutive Vice President
DAVID N. ROSS Executive Vice President
ROBERT TITO Executive Vice President
DAN MCGEEAssistant Vice President
HENRY D. LIEBERAssistant Vice President
AFFORDABLE RATETOTAL INVENTORY
(UNITS)
Boston Metro 63,593
Providence Metro 24,414
Springfield/Worcester Metro 21,063
AFFORDABLE RATE TOTAL 109,070
303 Congress Street | Boston, MA 02210 | 617.457.3400
www.NAIHunneman.com
MULTIFAMILYM E T R O B O S T O N
2017
METHODOLOGY
SOURCE: Co-Star, Yardi Matrix, NAI Hunneman Commercial Company. PREPARED: September, 2017. 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.
Q3MARKET RATE
AFFORDABLE RATE
CAPITAL MARKETS