NorthPoint, a 4.5 million-square-foot development proposed for 45 acres in Cambridge, Somerville and Boston, will eventually include 2.2 million square feet of commercial space, 2,500 apartment units, retail shops, a hotel, civic facilities and open space. The project, a joint venture of Guilford Industries and Spaulding & Slye Colliers, is one of many that will bring new rental units on line in Greater Boston in the coming years.
Homeownership may be on the rise but that doesn’t mean that apartments are suffering, according to a recent report from the National Multi Housing Council. While some analysts claim that the increase in homeownership, which has been spurred recently by low mortgage interest rates, will translate into huge losses for the rental market, the national trade group predicts that the overall demand for rental housing will actually climb over the next 15 years.
“Housing demand is not a zero-sum game,” said Mark Obrinsky, chief economist for the NMHC, based in Washington, D.C. “Population growth – through natural population increase, continued high levels of immigration and increased life spans – will increase demand for both owner- and renter-occupied housing.”
Some industry watchers say the trend bodes well for Massachusetts apartment owners as well, although many see strength of the apartment market as being dependent on job recovery. Based on the state’s demographics, interest rates and prospects for job creation, the mid- and long-term outlook for apartment ownership is a good one, said Andrew Chaban, chief executive officer of Princeton Properties in Lowell.
“There’s one thing I’m a little concerned about – salary levels and job growth,” he said. “The number of bodies is out there but, given the cost of land and construction in New England, will those folks be able to afford it [rental prices]?”
Supply and Demand
The key factor driving rental housing demand nationally in the next decade will be demographics – particularly the swell of “echo boomers,” or people between the ages of 8 and 27. After declining for two decades, the population in the prime renting years, ages 20 to 29, is expected to increase 11 percent between 2004 and 2010. Eventually, more than 80 million echo boomers will move into the housing market, most likely as renters first – and there’s no “baby bust” expected behind this generation as was the case with baby boomers, just a population plateau, according to the National Multi Housing Council.
The numbers aren’t as clear-cut for Massachusetts. According to Northeast Apartment Advisors’ “Boston Metro Apartment Market Research Report” for the third quarter of 2003, Boston has had a greater share of residents falling within the typical renter age than the national average. The 2000 U.S. Census found that 15.3 percent of Boston’s metro population was between 25 and 34 years old, while nationally 14.2 percent of the population fits into the same age group.
However, Northeast Apartment Advisors’ research report points out that future renters, those in the 15 to 24 age bracket, comprise only 12.8 percent of the Boston metro population vs. 14 percent nationally. Since each percentage point equals 51,500 people, the Boston metro “typical renter age” bracket will contract by 128,000 – unless the area experiences a significant population influx, according to the report.
Tom Meagher, president of Acton-based Northeast Apartment Advisors and author of the market research report, said that the number of college students in the metro Boston area causes fluctuations in the numbers, making future demand for rental units difficult to gauge.
That uncertainty is further complicated by the economy, now experiencing what’s been termed a “jobless recovery.” A Northeast Apartment Advisors report on job growth noted that Massachusetts has lost 193,000 jobs since the peak of the employment cycle in December 2001. But despite the loss of jobs and an obvious lack of substantial job growth, some industry watchers are pointing toward the positive absorption in the commercial real estate market as a sign of a bright future. At some point, continued economic expansion will lead to job creation, and even with the out-of-state migration of jobs and the record number of people buying homes, the future of apartment ownership can only be seen as extremely bright, according to Chaban.
“Investors have looked at Massachusetts as a supply-constrained market. They’ve looked to Class B apartments in the suburbs and those values have been very, very strong,” he said. “Suburban apartments in Massachusetts have become a staple diet of any diversified investment. The numbers for well-located, well-built products have been very strong and continue to be strong. I don’t see it letting up at all.”
Northeast Apartment Advisors pegged apartment occupancy rates at 94.7 percent in its report on the Boston metro apartment market – which includes communities extending from the Boston outward to those along the Interstate 495 beltway – during the third quarter of 2003. The company, however, projects that occupancy rates will slip slightly lower in Boston and Cambridge this year.
“The rental market’s weak compared to what it was three years ago,” said Matt Newman, principal of Prudential Unlimited Real Estate in Brookline. “Back then there was no vacancy – you couldn’t even find an apartment. Landlords could charge anything and they didn’t have to do anything.”
That’s not the case anymore. Renters now have the option of seeing about a dozen units and can “shop around” for those units with better pricing, amenities or highway access. In the early 1990s, most renters were required to pay Realtor fees, first and last month’s rent and security deposits upfront before they could secure a lease. In today’s market, upfront costs usually include only first and last month’s rent, according to Newman.
“If I’m living with two roommates and I was lucky to find a place for $2,100 three years ago, and the floors need work, the kitchen needs upgrading and I never said a peep, and then I find a landlord down the street who’s renovated the whole kitchen and fixed the hardwood floors in a $1,900 apartment. Now I’m saving 10 percent” and getting more for the money, he said.
Landlords are offering concessions to keep vacancy levels up, said Christopher Reilly, area vice president of Equity Residential in Norwood. However, it’s a tough time of year to tell what’s normal.
“The old rule in New England is if people walk in the door and they’re breathing, you’re going to figure out a way to rent them an apartment,” he said.
Reilly said he knows of an apartment complex in Providence, R.I., that’s now offering three to four months of free rent, and while concessions generally are not that steep in the Bay State, landlords are working harder to secure tenants.
Reilly predicts that renters will retain the upper hand in the market in the foreseeable future. In the next 18 months there are 7,000 new apartment units coming on line inside Interstate 495. That’s the largest delivery of apartments in a 24-month period in the last 20 years, he said.
Northeast Apartment Advisors currently is tracking 216 planned apartment development projects in the Greater Boston area totaling 49,857 units of rental housing. The company estimates that 60 percent of these units will be completed over the next seven years with a crest in delivery in 2006 and 2007.
One project includes NorthPoint, a 4.5 million-square-foot development proposed for 45 acres in Cambridge, Somerville and Boston. The project, which will break ground this year, will focus on Life Science use and eventually include 2.2 million square feet of commercial space, 2,500 housing units, retail shops, a hotel, civic facilities and open space. The project is a joint venture of Guilford Industries and Spaulding & Slye Colliers.
Recent job losses among high-income wage earners significantly impacted apartment unit demand, according to the Northeast Apartment Advisors report. Based on population trends, the report projects that long-term population growth will place demand for new rental housing at 4,284 new units per year in the immediate future. However, actual demand will not be as strong as those numbers would indicate if the state does recover many of the jobs lost during the last recession, an occurrence the report estimates will not come until at least 2005.
