The year 2013 saw historic growth in Boston’s apartment market through the fourth quarter that has continued into 2014. What’s driving this impressive growth?
Employment, construction, vacancy, and rent factors have all led to strong apartment operations throughout the Boston metro area. So has a booming tech market. Here are some highlights:
A market report by Marcus & Millichap noted that total annual employment growth for the metro area ticked up a whole percentage point, with more than 24,000 workers added to staffs. Though this figure is down slightly from 2012’s 1.6 percent expansion, the report emphasized that Boston-based job gains in 2013 were “broad-based”—nearly every sector expanded with new positions.
Hiring was particularly robust in technology (see below), professional and business services, finance, healthcare, and education. These trends are ushering in a large contingent of relocated employees, boosting demand in 2014 for apartments throughout Boston and neighboring areas. As a result, the city is experiencing a wave of upgrades to many historic buildings, as well as urban infill development.
Last year’s development of approximately 4,200 units in Boston was unprecedented, blowing away 2012’s number of 3,600 new apartments. Now in 2014, most of these units (over 3,800) are coming online at market rate, with seniors housing and other affordable housing accounting for the balance. Scheduled deliveries in 2014 are “near the pre-recession peak,” according to Marcus & Millichap.
Boston’s Seaport District is among the areas experiencing rapid growth in new construction. Separate research by Marcus & Millichap reported that thousands of employees have been relocated to the area over the past few years, resulting in a “thriving urban hub” for thousands of new households.
Despite all the new construction, vacancies in Boston were at historic lows in 2013, and that trend is expected to continue in 2014. Boston Real Estate Now noted at the end of January that listings were already down around 30 percent lower than last year.
Low vacancies in Boston again this year mean ever-increasing rents. Marcus & Millichap reported that the average rent now hovers around $1,700 per month—a 3.4 percent bump over 2013. Some industry insiders speculate that rents may have peaked. Ford Realty pointed out in a recent article that with 9,800 new apartments scheduled for Boston over the next few years, including 1,600 this year, rents might actually start to inch downward.
But others predict that rents won’t drop any time soon. The Boston Globe reported in January that Greater Boston would need around 435,000 new units by 2040 to accommodate the increasing demand for apartments and other homes. To put that number in perspective, that’s enough units to house Boston’s entire population. Boston Real Estate Now speculates that it will be difficult to construct enough new residences quickly enough to keep rents from escalating.
The Boston Herald recently reported that the city’s tech industry is expected to experience another surge in 2014, with several key startups committing to the area. This affects the apartment market by stimulating growth as well as rising prices. New research from Trulia showed housing prices are more than 80 percent higher in tech hubs like Boston than other metro areas. According to The Boston Globe, “The startup scene in Boston grew a lot in 2013, and it’s going to have an even bigger year in 2014.”