MARKET REPORT

MULTIFAMILY
Boston Metro Area Q2/19
One of the Lowest Vacancy Rates in the Country
Drives Rent Growth in Boston Suburbs Multifamily 2019 Outlook

Corporate expansion adds to rental demand, lowering vacancy. CONSTRUCTION:

Several medical technology and life science firms are increasing their Annual deliveries fall below 8,000 units
footprints. Many favor Cambridge for its proximity to two of the coun- for the first time in three years. Down-
try’s best universities, lifting housing demand nearby. The development
pipeline in the area is only 20 percent that of last year, leading to lower
6,400 UNITS
will be completed
town completions continue to decline
while more openings occur in certain
apartment availability in 2019. A slowdown in construction will produce suburban areas.
a similar result in the Fenway-Brookline-Brighton area, which began the
second quarter at a 3.1 percent vacancy rate. Improving operations in
these and other parts of Boston will decrease the metrowide vacancy rate VACANCY:
this year to its lowest level this cycle.
Fewer completions in 2019 clear a path
for the vacancy rate to dip to 3.3 percent,
Tight vacancy in Southwest Boston and other submarkets lifts rents.
While the market’s overall construction pipeline is shrinking this year,
30 BASIS POINT
decrease in vacancy
a cycle low. Last year the vacancy rate
decreased by 70 basis points.
development is expanding in certain submarkets, such as Southwest Bos-
ton. More than 1,000 units will open here this year, compared with about
80 rentals in 2018. Completions are planned in Dorchester and near
Olmstead and Franklin parks. Although the arrivals will raise vacancy in RENTS:
these areas, the added inventory is welcomed. A sub-3 percent vacancy
The average effective rent will increase
rate at the start of the year demonstrates the lack of available units in the
to $2,366 per unit, led by growth from
submarket, a hurdle for new renters. However, low vacancy has greatly
benefited owners’ ability to raise rents. Monthly rates are improving
4.2% INCREASE
in effective rents
workforce housing. In 2018 monthly
rates appreciated 6.1 percent.
elsewhere in the metro as well, including in Fenway, supporting an
above-national pace of appreciation for the market again this year.

Investment Trends
• Investors seeking higher short-term returns and value-add oppor-
Local Apartment Yield Trends tunities are looking toward the North Shore with greater frequency.
Apartment Cap Rate 10-Year Treasury Rate Transactions completed in recent months almost exclusively involved
century-old properties with fewer than 20 units that reported
12%
above-market first-year yields in the mid-6 to mid-7 percent band.
9% • More assets changed hands in the Route 1 area between Boston and
the North Shore over the past 12 months than in any other submarket.
Rate

6% As with the North Shore, age and building size contribute to below
market sale prices. The average sale price for Route 1 is $142,000 per
3%
unit, appealing to buyers targeting low entry costs. Cap rates are cor-
respondingly high, lying in the mid-7 to 8 percent zone.
0%
* 01 03 05 07 09 11 13 15 17 19*
• Institutional investors seeking larger properties built within the last
30 years can find options across the entire market, including in South
Suffolk County and the Back Bay. The average sale price for these deals
Sales Trends is roughly $411,000 per unit with low-4 percent initial returns.
* Cap rate trailing 12-month average through 1Q; Treasury rate as of March 29
Sales Price Growth
Sources: CoStar Group, Inc.; Real Capital Analytics
r Unit (000s)

$400 40%
Year-over-

$300 20%
 Employment Trends 1Q19
Local Apartment – 12-Month
Yield Trends Period
Apartment Cap Rate 10-Year Treasury Rate
4%
Metro United States
EMPLOYMENT
12%
0.9% increase in total employment Y-O-Y
Year-over-Year Change

2%
9%
• An unemployment rate below 3 percent constrained hiring activity
over the past 12 months, limiting total job creation to approximately

Rate
0%
6%
23,600 positions.
-2% 3% • Job gains were recorded in the professional and business services
sector as well as the health and education sector. Both more than
-4%
01 offset
03 losses in the09leisure
11 and
13 hospitality, financial activities and
0%
09 10 11 12 13 14 15 16 17 18 19* 05 07 15 17 19*
construction sectors.

Completions and Absorption Sales Trends

Sales Price Growth
Completions Absorption CONSTRUCTION
Average Price per Unit (000s) $400 40%
12 7,600 units completed Y-O-Y

Year-over-Year Growth
Units (000s)

$300 20%
9 • Completions over the past four quarters fell short of the prior year’s
total by about 500 apartments, as the number of deliveries declined
$200 0%
6
in Intown and Southwest Boston as well as in North Essex County.
3 $100 • The development pipeline expanded notably
-20% in Quincy and
Cambridge as more than 1,000 units opened in each submarket for
0 $0 -40%
the first time since at least 2015.
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*

Vacancy Rate Trends

Metro United States VACANCY
10%

30 basis point decrease in vacancy Y-O-Y

8%
Vacancy Rate

• The marketwide vacancy rate dipped to 3.9 percent year over

year in March, 90 basis points below the national level.
6%

• Higher rental demand across Rockingham and Strafford counties

4% contributed to a 130-basis-point drop in the vacancy rate to 2.3
percent in the first quarter. Fewer deliveries prompted declines
2% in other submarkets as well, with availability also falling below 3
09 10 11 12 13 14 15 16 17 18 19*
percent in South Essex County and Plymouth County.

Rent Trends
Monthly Rent Y-O-Y Rent Change RENTS:
$2,400 12%
5.8% increase in the effective asking rent Y-O-Y
Year-over-Year Change
Monthly Effective Rent

$2,050 6% • The average effective rent climbed to $2,289 per month during
the 12-month span ended in March, after posting a 3.4 percent
$1,700 0%
increase in the prior annual period.

$1,350 -6% • Rent growth was most pronounced in Class A apartments, as monthly
rates appreciated 5.2 percent year over year in March for this tranche.
$1,000 -12% Monthly rates advanced at similar paces for Class B and C rentals,
09 10 11 12 13 14 15 16 17 18 19*
with rates in the mid-4 percent band.

* Forecast
Sources: CoStar Group, Inc.; Real Capital Analytics
Demographic Highlights

Five-Year Population Growth* 1Q19 Population Age 20-34 1Q19 Median Household Income
(Percent of total population)
112,200 $90,453
Metro 22% Metro

U.S. Median $64,259

U.S. 21%

1Q19 Total Households

Five-Year Household Growth* Population of Age 25+ Rent 39%

Percent with Bachelor’s Degree+**
72,900
Metro 45% Own 61%
U.S. Average 30%
* Forecast ** 2018-2023

SUBMARKET TRENDS SALES TRENDS

Historically Low Cap Rates Motivate More
Lowest Vacancy Rates 1Q19
Employment Trends Investment in Local
AreasApartment
Surrounding City of Boston
Yield Trends
Metro Y-O-Y United States
Average
• Trading velocity slowedCap
Apartment mildly
Rateover the past 12 months
10-Year Treasury following
Rate the
Vacancy Y-O-Y %
Submarket 4%
Rate
Basis Point Effective
Change
record level of exchanges in the preceding four quarters.
Change Rent 12%
• Financial market volatility and rising interest rates in 2018 may have
Year-over-Year Change

Rockingham- 2%
2.3% -130 $1,348 4.7% contributed
9%to a slight softening in the average sale price over the past
Strafford Counties
12 months to $295,300 per unit. Over that same span, the average cap
Rate

South Essex County 0% 2.8% -40 $1,835 1.2% rate remained

6% stable in the low-5 percent zone.

Plymouth County -2% 2.9% -20 $1,696 0.2% Outlook: Low yields in the core are prompting more investors to target
3%
secondary areas, including the towns of Salem and Lynn. This trend
Fenway-Brookline-Brighton
-4% 3.1% -50 $2,912 4.2% should continue
0%
this year as returns remain close to cycle lows.
09 10 11 12 13 14 15 16 17 18 19* 01 03 05 07 09 11 13 15 17 19*

Lowell 3.4% -60 $1,762 4.0%

Marlborough-Framingham Completions
3.4% and Absorption
-50 $1,844 6.3% Sales Trends
Completions Absorption Sales Price Growth
North Essex County 3.6% 20 $1,680 5.3%
Average Price per Unit (000s)

$400 40%
12
Year-over-Year Growth

Southwest Boston 3.6% 40 $2,085 7.3%

Units (000s)

$300 20%
9
East Middlesex County 3.8% -70 $2,275 5.6%
$200 0%
6
West Norfolk County 3.9% -120 $2,023 2.6%
3 $100 -20%

Chelsea-Revere-Charlestown 4.1% -50 $2,209 1.1%

0 $0 -40%
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
Overall Metro 3.9% -30 $2,289 5.8%

** Trailing 12 months through 1Q19

Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
10%
 1Q19* Apartment Acquisitions CAPITAL
CAPITAL MARKETS
MARKETS
By Buyer Type
Other, 0.9%
By DAVID G. SHILLINGTON, President,
Cross-Border, 8.6%
Marcus & Millichap Capital Corporation
• International pressures weigh on domestic outlook; Fed remains
Equity Fund
& Institutions, 23.5% patient. Amid ongoing trade disputes between the U.S. and China
and slowing growth throughout the European economy, the global
economic outlook has become more cautious. Market volatility,
Private, 64.1%
Listed/REITs, 2.9% combined with muted sentiment, has sponsored a flight to the safety
of Treasurys, pushing the 10-year yield below 2.6 percent. While
domestic growth has moderated recently, the waning impact of the tax
cut stimulus will likely trim forward estimates further. As a result, the
Apartment Mortgage Originations Fed has decided to cease reducing its balance sheet reduction through
By Lender quantitative tightening by September and removed the potential for
rate increases through the remainder of the year. The bond market
100%
has begun to price in a much more dovish Fed, with flattening interest
Percent of Dollar Volume

Gov't Agency rates reflecting more caution. Fed officials will likely focus on the
75%
Financial/Insurance intersection of a global growth slowdown and continued labor market
Nat'l Bank/Int'l Bank strength to refine their plans moving forward, keeping interest rates
50%
Reg'l/Local Bank
Atlanta Office: Michael Glass First Vice Pre
stable for the foreseeable future. michael.glass@marcusmillichap.c
CMBS Michael Fasano First Vice President/Regional Manager
25% • Abernathy
1100 Abundant Roadliquidity sources
N.E., Bldg. 500, balance conservative approach
Suite 600 to Office:
Cleveland
Atlanta, GA 30328 5005 remains
Rockside Road, Suite 800
underwriting. The availability of
(678) 808-2700 | michael.fasano@marcusmillichap.com
debt for apartment assets
Independence, OH 44131
0% elevated, spurred by the recent pivot by the Federal Reserve. Sourcing
(216) 264-2000
14 15 16 17 18
will be led by Fannie Mae and Freddie Mac, in addition to a wide
Columbus Office:
array of local, regional and national banks, and insurance companies.
230 West Street, Suite 100
* Trailing 12 months through 1Q19
Includes sales $2.5 million and greater Loan-to-value (LTV) ratios are trending between 65 andColumbus, 75 percentOH 43215
Sources: CoStar Group, Inc.; Real Capital Analytics (614) 360-9800
Austin Office:
on stabilized properties. The decline in interest rates has rewidened
CraigtheSwanson
spread between cap rates and
Vice President/Regional Treasurys, reducing lender concerns
Manager
9600about
North Mopac Expressway, Suiteto
300 Cincinnati Office:
the risks related repayment and valuation at maturity.
Austin, TX 78759
(512)Development Colby Haugness Regional M
and value-add projects have seen more conservative
338-7800 | craig.swanson@marcusmillichap.com
600 Vine Street, 10th Floor
National Multi Housing Group lending due to concerns surrounding overdevelopment and the length
Cincinnati, OH 45202
John Sebree of the business cycle, leading to a greater use of alternative
(513)fi878-7700
nancing | colby.haugness@

First Vice President, National Director | National Multi Housing Group structures such as mezzanine loans and preferred equity to cover the
Tel: (312) 327-5417 | john.sebree@marcusmillichap.com additional capital requirements.
Baltimore Office: Tim Speck First Vice Presiden
Prepared and edited by tim.speck@marcusmillichap.com
Cody Young Matthew Drane Regional Manager
Research Associate | Research Services 100 E. Pratt St., Suite 2114 Dallas Office:
Baltimore, MD 21202 5001 Spring Valley Road, Suite 100
Tel: (202) 536-3700 | matthew.drane@marcusmillichap.com Dallas, TX 75244
For information on national apartment trends, contact: (972) 755-5200
John Chang
Senior Vice President, National Director | Research Services Fort Worth Office:
300 Throckmorton Street, Suite 15
Tel: (602) 707-9700 | john.chang@marcusmillichap.com
Fort Worth, TX 76102
(817) 932-6100
Boston Office:

Price: $250 John Horowitz First Vice President/Regional Manager

100 High Street, Suite 1025
Boston, MA 02110
© Marcus & Millichap 2019 | www.MarcusMillichap.com
(617) 896-7200 | tim.thompson@marcusmillichap.com
Denver Office:

Skyler Cooper Regional Man

1225 17th Street, Suite 1800
Denver, CO 80202
Charleston Office: (303) 328-2000 | skyler.cooper@m
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee,
Benjamin
express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level Yelm
employment growth is calculated
Regional Manager based on the last month of the quarter/year. Sales data
151ofMeeting
includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intended to be a forecast Street,and
future events Suite 450
this is not a guaranty regarding a future event. This is not intended to provide
Charleston, SC 29401
specific investment advice and should not be considered as investment advice.
(843) 952-2222 | benjamin.yelm@marcusmillichap.com
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association of Realtors; Moody’s Analytics; Real Capital Analytics; RealPage, Inc.; TWR/Dodge
Pipeline; U.S. Census Bureau
Detroit Office:

Steven Chaben Senior Vice P

Two Towne Square, Suite 450
Southfield, MI 48076