A recent article in The Boston Globe talked of the recent surge in apartment construction, identifying 11 developments either under construction or about to receive final approvals. Although not as many, there are also large multifamily projects underway in the suburbs, including John M. Corcoran’s development in SouthField (the former Weymouth Naval Air Base) that Rick High described at NAIOP’s recent lunch program.
Some skeptics believe that the weak economy and high supply will result in an oversupply of multifamily housing. I disagree. There is no doubt we have room in the market for quite a few more projects, both in Boston and the surrounding communities.
Since the recession began in 2009, the vacancy rates for rental housing have plummeted and, not surprisingly, the rents have pushed upwards. Boston now has one of the lowest vacancy rates in the country. With higher rents and interest rates remaining historically low, new multifamily developments are finally viable. Though the costs of housing production in Massachusetts are still among the highest in the nation, due in part to labor costs, these projects are profitable (by some rather thin margins, though.)
If you believe the increased demand is only due to the burst of the single family housing bubble and the resulting foreclosures, you need only look at the other drivers in this area. The research firm REIS has reported that the net absorption in this market is the highest on record since it started tracking the data in 1980!
As reported by Cushman & Wakefield, there are a number of factors contributing to the growth of the rental housing market in the Boston area:
- Job Growth: With a conservative 35,000 jobs a year projected to be created, there will be an additional 35,000 households over the next 5 years;
- Change of Ownership: 87,000 rental households are needed to fulfill the demand created by the shift in ownership from single family to rental;
- Increase of Echo Boomers (ages 21-34): 27,000 rental units are needed to satisfy the demand created by this generation. Approximately 75% of this population are renters and this demographic is expected to grow by 2.2% over 5 years.
Bottom line – that’s a lot of demand! And even with all of the construction planned, the vacancy rate is still projected to drop. Certainly good news for developers and the Massachusetts economy!