multifamily report

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...

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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


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*


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


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


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


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


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



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*


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


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


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

[email protected]

GINA BARROSOAssistant Vice President

[email protected]

IAN MCKINLEYSenior Associate

[email protected]

CARL CHRISTIEExecutive Vice President

[email protected]

DAVID N. ROSS Executive Vice President

[email protected]

ROBERT TITO Executive Vice President

[email protected]

DAN MCGEEAssistant Vice President

[email protected]

HENRY D. LIEBERAssistant Vice President

[email protected]

AFFORDABLE RATETOTAL INVENTORY

(UNITS)

Boston Metro 63,593

Providence Metro 24,414

Springfield/Worcester Metro 21,063

AFFORDABLE RATE TOTAL 109,070


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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.

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AFFORDABLE RATE

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