Rent Boston Multi-Family The most interesting trend is that after many years of fantastic rent growth, downtown luxury product is having problems finding tenants, leading to stagnant rents or declines in a few cases, plus an increase in concessions. This goes not only for the brand-new buildings delivered in this cycle, but also for the other buildings that compete with them. And it is true for buildings that lie outside the submarkets with a tremendous amount of building. Take the Back Bay, for example. It only had two buildings complete in this cycle, compared to South Boston and the Seaport, which have had a combined 12 buildings deliver. And yet rent growth in the Back Bay has dropped off dramatically since the end of 2015 , worse than the roughly 3% growth in South Boston/Seaport. This is not to imply that the entire metro is having problems, some submarkets such as Allston/Brighton and North Shore are doing quite well, but there has been little construction in these submarkets, nor do they compete with the submarket that have been building. The reason is simple: competition. While this may not be true at the non-institutional end of the market, such as the small three-to-five-floor walkups, larger buildings are competing head-to-head for tenants and have not been able push rents the way they did from 2010 through the end of 2015, when rent growth in the Back Bay was 3% annually. In fact, the median rent growth for Boston area submarkets over that period was an astonishing 4% per year, and in a few cases, such as the Waltham/Arlington/Belmont Submarket, over 5%. If we look at the cities of Boston and Cambridge, where most construction has been focused, there is a clear increase in concessions. During the beginning of the
recovery, for example, these areas had an average concession of roughly zero, but now it’s up to about 8%, which equates to one month’s free rent. This share of concessions is also clearly biased to the newer buildings, as only 2% of all buildings in these cities are offering concessions, but 25% of buildings built since 2010 are offering them. Additionally, we try to get a truer picture of concessions through our 200 secret shoppers, who call apartments posing as potential renters, but even then we may not be getting the complete scope of the trend. We hear from our clients of some buildings offering two months of free rents in concessions, or paying tenants’ moving costs or giving them gift cards. We have also heard that many buildings are paying a full month’s broker’s fee, which traditionally would have been paid by the tenant. In fact, we’ve heard of a few managers who are paying double fees (two months of free rent) to brokers to get people in the door. Depending which side of the coin you’re on, the good news for owners (bad news for tenants) is that deliveries will drop dramatically after 2018, due to rising construction costs and fewer available/profitable sites, but mostly because of a dearth of credit, as many banks have loaded up on apartment construction loans and don’t have room on the balance sheet for any more. Once construction wanes, landlords will find themselves in a more normal rental environment, but they’ll be presented with a new problem on the horizon: fewer potential tenants, as the last of the Millennials age into the prime renting cohort, those 20–34 years old. The generation behind Millennials, Generation Z, (born after 2000) is a smaller one and can’t pick up the slack.
6/13/2018 Copyrighted report licensed to United Multi Family Corporation - 58098.
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