Apartment Development is Coming in Mass, Despite Boston’s High Barriers
While Boston is generally considered a high barrier-to-entry market, new apartment construction activity has ramped up to multi-decade highs over the past few years, resulting in high completion volumes.
In the year-ending 1st quarter 2019, new apartment deliveries in Boston totaled 7,615 units. This was a top 10 performance in the nation overall, closely followed by completion volumes in Austin and Northern New Jersey. While new supply in Boston has come down from the multi-decade peak reached in 2017, deliveries remain well ahead of the long-term standard for this market.
The past five years, specifically, have been significant for Boston, as completions averaged around 7,400 units annually. In the decade prior to that, average annual supply volumes were much less, at about 3,400 units.
During the current economic cycle, which started in 2010, roughly 51,600 market-rate units have been completed in Boston, increasing the inventory base here by 15%. The market just missed a spot in the top 10 for supply additions during that time frame, ranking at #11, just below Denver and Chicago.
Factors that typically contribute to limited new apartment completions in Boston are high development costs, limited availability of sites and a lengthy process to gain approval for projects. While those hurdles haven’t changed, some properties that had been on the drawing board for decades have been delivered recently, and the market absorbed them quickly.
In fact, with rising population and employment numbers, and a competitive market ready for new supply, Boston has had no trouble absorbing elevated completion volumes at all. In the year-ending 1st quarter, the market recorded demand for 8,300 units, well ahead of concurrent deliveries. As a result, occupancy has remained tight and is sitting at 96.1%, ahead of historical norms.
Among submarkets, those receiving the biggest blocks of new supply benefited from the most demand recently. These areas are also, for the most part, the most expensive in the market, in high-density zones and close-in suburbs. In fact, the top four submarkets are those that surround the Boston Inner Harbor.
By far Boston’s most expensive submarket – Intown Boston – received the biggest block of new completions during the current cycle, with additions totaling more than 7,300 units. These deliveries expanded the downtown area’s existing base by a sizable 22.7%. Demand has been solid in the urban core – an employment hub benefitting from a solid economy in recent years – but at 95.2%, occupancy remains below the market average.
Located north, across the harbor from downtown, is the Chelsea/Revere/Charlestown submarket, where nearly 6,400 units came online since 2010. This area is much less expensive than the urban core and the existing base here has nearly doubled in the past nine years. Occupancy is a little stronger here as well, which is not surprising, given this area offers much more affordable rental rates with a close commute to the job opportunities of downtown.
Just over the Charles River from the urban core, Cambridge/Somerville has seen about 5,400 new apartments delivered during the current cycle, increasing the inventory base by 18.8%. Occupancy here is on the softer side at 94.8%, held down by competition from purpose-built student housing for the handful of universities in the area. Average rental rates in Cambridge/Somerville run second highest in the market, behind only Intown.
Moving up the Harbor, just north of the Mystic River is East Middlesex County, a close-in northwestern suburb about 10 miles from downtown. Nearly 5,300 units have been completed here during the current cycle, swelling the inventory base by 20.1%. Among the top five supply submarkets, Middlesex County’s occupancy rate is the only one that tops the market average at 96.2%.
West Norfolk County is located further out from the rest of these inner submarkets. This southwestern suburb saw Boston’s second largest inventory increase of 27.9%, with additions totaling a little over 4,000 units during the current cycle. Average rental rates here are some of the most affordable in the market at $2,023, and occupancy is in line with the overall Boston norm of 96.1%.
Looking ahead, completions are scheduled to continue at a higher than average pace. Boston is expected to see deliveries reach about 8,100 units by 1st quarter 2020, before supply is set to fade to about 5,600 units by 1st quarter 2021. Neighborhoods with the biggest blocks of new construction under way are spots that have already been active this cycle.
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