Development shifts to the suburbs
As construction costs continue to rise and urban rent growth flattens , developers and equity have begun to focus on outer-urban and suburban development opportunities . Wood-frame , non-union developments can be delivered at less than half the cost of urban , high-rise , 100 % union projects . The suburbs have seen limited development activity over the last four years , which has driven significant rent growth in existing properties . Recently , this rent growth has produced rents that support untrended return on costs north of 6 % as far out as the I-495 corridor . Costs are more predictable and developers are not pushing overly aggressive rent assumptions .
The effect of urban deliveries
Urban areas have been the overwhelming focus of developers over the last three years . New luxury apartments continue to deliver across the city at an historic pace . Approximately 5,300 units of urban , institutional quality rental housing were delivered from 2013-2016 , with another 2,500 units being delivered in 2017 . ( See chart 1b .)
Cautious optimism
Overall , Boston is still not being overbuilt . Demographics are still in our favor like never before , and the composition of the development pipeline is shifting to adapt to new rent and cost assumptions . Not enough quality multifamily product exists to meet the pent-up demand of renters or investors in the Boston Metro , and capital allocations are driving more and more institutional equity into the top few real estate markets . Our unrivalled educational institutions will continue to attract the top intellectual capital in the world , but now we will finally have the modern housing and 24-hour lifestyle necessary to retain our graduates for the long run . We feel strongly that Metro Boston multifamily will continue to thrive .
Hanover CambridgePark , Cambridge
There has been a transformation of Downtown Boston ’ s rental housing , which is supported by exceptional demographics and the well-documented trend of urbanization . However , we still have the lowest percentage of Class A housing across any major Metro in the US .
Though we are confident these units will be absorbed by increasing demand , certain neighborhoods will see a rise in short-term vacancy and flat rent growth and concessions will continue as towers deliver 200 to 400 vacant units at a time .
3,000
2,500
2,000
2,411 2,492
|
1,000
500
|
867 |
1,248 |
1,303 |
1b . Downtown Boston apartment deliveries
0
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