This 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. The unemployment rate turned a corner in September after remaining elevated above 4% for several months, and 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% in the third quarter while the Class A-/B+ and Class B/B- asset classes posted vacancy rates of 3.8% and 3.6%, respectively.
Despite some upward pressure on vacancies due to new construction, rent trends remain positive here. As of the third quarter, Greater Boston asking rents increased by 1.9% compared to year-ago levels. At close to $2.40 per square foot, average effective asking rents in Greater Boston command an almost $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 throughout the year as well.
Nationally, multifamily has become a favored asset class among investors. With that said, preliminary third-quarter data from Real Capital Analytics shows that apartment investment crept up by 4% year-over-year, but has declined by 9% year-to-date. While overall transaction volume remains depressed at a macro level, activity in Greater Boston’s multifamily market continued to surge during the third quarter, with roughly $1.5B in assets changing hands metrowide.
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