rents remain strong despite uptick in supply market …… · credits. investors throughout the...
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303 Congress Street Boston, MA 617.457.3400 www.naihunneman.com 1
RENTS REMAIN STRONG DESPITE UPTICK IN SUPPLY
303 Congress Street | Boston, MA 02210 | 617.457.3400
www.NAIHunneman.com
MARKET RATE
AFFORDABLE RATE
CAPITAL MARKETS
Q2 2017 MULTIFAMILY
M E T R O B O S T O N
INSIDE STATISTICS...
Committed to Boston, Connected to the World.2
Pricing Continues to Climb in Greater BostonThis 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. While the unemployment rate has ticked up in recent months, 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 4.3% in the second quarter while the Class A-/B+ and Class B/B- asset classes posted vacancy rates of 3.6% and 3.5%, respectively.
On the supply-side market rate construction has been concentrated in Greater Boston, with more than 5,400 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 12,000 units, which will likely cause vacancies to increase modestly. The market may also see an increase in concessions as these new 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. Proposed tax cuts under the new administration have created some uncertainty around federal low-income housing tax credits and retrenchment in financial commitments among investors, which could limit new affordable housing projects
Despite some upward pressure on vacancies due to new construction, rent trends remain positive here. As of the second quarter Greater Boston asking rents increased by 2% compared to year-ago levels. At close to $2.40 per square foot, average effective asking rents in Greater Boston command a $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 during the first half of 2017 as well.
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 second quarter at just 3.9%, while the Class A-/B+ market saw vacancies climb to 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 investment sales continue to retrench. According to data from Real Capital Analytics, apartment transaction volume dropped by 17% year-over-year as of June. Moreover, the volume of single-asset trades is slowing more significantly. Despite this abatement in volume, cap rates continued to compress and the lack of available product for sale is pushing up pricing. While overall transaction volume remains depressed at a macro level, Greater Boston’s multifamily market experienced a surge in activity during the second quarter. With several large acquisitions taking place, sales volume topped $700MM.
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:
3,897 57% Increase YTD June 2016
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(2016)
ANNUAL CONCESSION (AVERAGE $)
3.10% $2.17 1,914 5,480 1.2%
Q2
303 Congress Street Boston, MA 617.457.3400 www.naihunneman.com 3
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016 2017*
Boston Providence Springfield/Worcester
$0
$500
$1,000
$1,500
$2,000
$2,500
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
Boston Providence Springfield/Worcester
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Q12012
Q32012
Q12013
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Boston Providence Springfield/Worcester
RENTS
VACANCY
UNITS COMPLETED
TOTAL INVENTORY
(UNITS)
TOTAL VACANT (UNITS)
TOTAL VACANCY
RATE
Q2 NET ABSORPTION
YTD NET ABSORPTION
ASKING RENT ($/SF)
Boston Metro 142,463 4,559 3.2% 721 1,655 $2.39
Providence Metro 25,769 850 3.3% (35) (7) $1.51
Springfield/Worcester Metro 24,515 662 2.7% 16 266 $1.51
TOTAL 192,747 6,071 3.1% 702 1,914 $2.17
TRENDS
• Boston remains one of the most expensive rental markets in the nation. According to Zumper, the region ranks among the top 5 most expensive for renting a one-bedroom apartment. Looking at rents across the metro, the priciest submarkets are in the urban core. Rents in the Back Bay are close to $4,000/unit while Downtown and South Boston boast average rents in the low-to-mid $3,000/unit range.
• Asking rents continue to climb in Metro Boston; increasing by more than 30% over the last five years and reaching $2.39 per square foot in the second quarter.
• There are more than 19,000 market rate units underway in the Greater Boston multifamily market. Some of the largest projects, which include 800 units underway at Bulfinch Crossing, the 585-unit 345 Harrison Avenue in the South End and the 503-unit Avalon North Station, are located in Boston’s urban core and the Inner Suburbs.
• High homeownership costs, particularly in popular neighborhoods, are helping to drive rental demand in Boston.
• Vacancies in the Providence metro remain elevated compared to a year-ago levels, ending the second 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
• The recent proposal of tax cuts under the new administration has created some uncertainty around federal low-income housing tax credits. Investors throughout the U.S. are now paying less for these credits as they are under the assumption the current administration will likely cut corporate income tax rates. The resulting devaluation of these tax credits could impact projects that received low income housing tax credits in 2016 and potentially limit future developments.
• In Somerville, the city is requiring Federal Realty Trust to make 16% of its Assembly Row project affordable. Of these 80 affordable units, only 31 will be at the new building and the developer will finance the remaining to be built elsewhere in Somerville.
• Boston’s Inclusionary Development Policy has increased the number of affordable housing units throughout the city. According to a recent report, this program has led private developers to construct more than 1,700 affordable apartment and condo units in Boston.
• WinnDevelopment is planning a $44M, 140-unit community in Quincy that will feature a large number of workforce housing. The Watson on Howard will include 28 affordable units, 86 units of middle-income housing and 26 market rate units; with delivery set for mid-2018.
• The Cambridge Housing Authority is nearing completion on the redevelopment of Jefferson Park, which includes 104 affordable units, located in North Cambridge.
• Construction on the now-vacant Imperial Knife Company site has begun and will result in 60 units of mixed-income housing on King Street in Providence Rhode Island. Rhode Island Housing also approved financing for three new affordable developments. Palmer Pointe is located in Barrington, Maplewoods Apartments are in Providence and Shannock Falls/Richmond Ridge are in Charlestown.
$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
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016 2017*
Boston Providence Springfield/Worcester
$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
UNITS COMPLETED
2017Q2 AFFORDABLE RATE
MULTIFAMILY
TOTAL INVENTORY
(UNITS)
UNITS COMPLETED
(2012-16)
EXPECTED COMPLETIONS
(2017)
Boston Metro 63,489 2,101 154
Providence Metro 24,414 148 50
Springfield/Worcester Metro 21,215 496 -
TOTAL 109,118 2,745 204
*Expected
303 Congress Street Boston, MA 617.457.3400 www.naihunneman.com 5
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2012 2013 2014 2015 2016 YTD
In M
illio
ns
Total Volume ($) Median $/Unit
BOSTON METRO SALES
PROVIDENCE SALES
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
2012 2013 2014 2015 2016 YTD
In M
illio
ns
Total Volume ($) Median $/Unit
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
2012 2013 2014 2015 2016 YTD
In B
illio
ns
Total Volume ($) Median $/Unit
NOTABLE TRANSACTIONS
SPRINGFIELD / WORCESTER SALES
CAPITAL MARKETS
BUYERJOHN M. CORCORAN &
COMPANYHEITMAN
BARINGS REAL ESTATE ADVISORS LLC
TA REALTYTAURUS INVESTMENT
HOLDINGS
ADDRESS 624 Walpole Street 30 Cambridge Park Drive 4 Riverhurst Road 625 Thomas E. Burgin Pky 12 Valley Street
TOWN Norwood Cambridge Billerica Quincy Everett
# OF UNITS 914 312 324 180 190
SALE PRICE $199,000,000 $168,000,000 $86,500,000 $68,500,000 $56,000,000
TOTAL SALES VOLUME ($)
SPRINGFIELD / WORCESTER SALES VOLUME ($)
PROVIDENCE SALES VOLUME ($)
BOSTON SALES VOLUME ($)
TRENDS
• While overall transaction volume remains depressed at a macro level, Greater Boston’s multifamily market experienced a surge in activity during the second quarter. With several large acquisitions taking place, sales volume topped $700MM. This represents a 200%+ increase from the first quarter and a slight increase from year-ago levels.
• Boston remains a top destination for capital with continued interest from foreign and institutional players. However, peak pricing and uncertainty surrounding current federal legislation will likely continue to have an impact on the bid-ask spread among buyers and sellers; ultimately weighing on transaction volumes.
• In terms of affordable housing, Burbank Gardens Company sold the 52-unit Burbank Gardens to Fenway Community Development Corp. for $15.2MM or $292,307 per unit, at a 5.7% cap rate. Reportedly, state subsidies were expiring in 2018.
• Cap rates continue to compress in Greater Boston’s multifamily market. Many of the second-quarter deals were sub-6%; even in the suburbs. As a result, median cap rates ended the first half of 2017 at a five-year low of 5.6%.
• Year-to-date, the Providence metro clocked in more than $35 million in multifamily investment sales. Pricing has also steadily climbed since 2012, with the median price per unit ending the second quarter of 2017 above $55,000.
• Sales volume in the Springfield/Worcester metro decelerated in 2016 after peaking the previous year. With that said, more than $83 million in multifamily assets changed hands year-to-date and the median price per unit increased to $78,000.
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
2017Q2
AVERAGE BY CITYQ2 2017Source: Yardi Matrix
$2,040 to $3,760
$1,730 to $2,040
$1,440 to $1,730
$1,190 to $1,440
$1,190 or less
303 Congress Street Boston, MA 617.457.3400 www.naihunneman.com 7
MULT IFAMILY INVESTMENT TEAM
M E T R O B O S T O N M E T R O B O S T O N
MARKET RECAP
MARKET RATETOTAL INVENTORY
(UNITS)
UNDER CONSTRUCTION
(UNITS)
TOTAL VACANT (UNITS)
TOTAL VACANCY RATE
Q2 NET ABSORPTION
(UNITS)
YTD NET ABSORPTION
(UNITS)
ASKING RENT ($/SF)
Boston Metro 142,463 19,354 4,559 3.2% 721 1,655 $2.39
Providence Metro 25,769 1,375 850 3.3% (35) (7) $1.51
Springfield / Worcester Metro 24,515 1,078 662 2.7% 16 266 $1.51
MARKET RATE TOTAL 192,747 21,807 6,071 3.1% 702 1,914 $2.17
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)
UNDER CONSTRUCTION
(UNITS)
Boston Metro 63,489 513
Providence Metro 24,414 50
Springfield/Worcester Metro 21,215 -
AFFORDABLE RATE TOTAL 109,118 563
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: June 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.
Q2MARKET RATE
AFFORDABLE RATE
CAPITAL MARKETS