This bulletin board outside of Boston’s Preferred Properties’ office on Gainsborough Street in Boston advertises apartments for rent in the area.
It may never be a better time to rent in the Bay State. From Allston to the North End to desirable Back Bay property, owners are reducing rents and offering a variety of incentives to keep their apartments filled. And it’s not just Boston that’s having a tough time keeping occupancy rates up. Apartment owners in the MetroWest and South Shore have also seen the once tight rental market unraveling, as an abundance of apartments continue to become available and the pool of renters shrinks.
The softening rental market is not a recent trend. The Greater Boston rental market first started showing signs of softening about 18 to 21 months ago, according to industry leaders. Low mortgage interest rates, which have spurred many tenants to become homeowners, and job layoffs in the financial services and high-tech industries have been the primary factors in the rental market shift, industry experts said. Also, the construction of new rental housing in and around Boston has introduced a fresh supply of apartments into the market and opened the door to more competitive rates.
While the luxury apartment market been most acutely affected, the trend has gradually extended to even the more moderately priced apartments, according to rental agents.
“In general, pricing has stabilized and rental housing is more affordable than it was several years ago,” said William McLaughlin, president of the GBREB’s Rental Housing Association.
Some industry leaders contend that occupancy rates have started to rise because property owners, having recognized the shift in the market, have lowered rents and offered attractive incentives to would-be renters. The Greater Boston Real Estate Board surveyed its members last fall and reported an 8 percent vacancy rate, up from 2 percent in 2000 and 2001.
“I think we’re on the road to stabilization in the rental business,” said McLaughlin. Although McLaughlin said he wouldn’t characterize it as a “recovery” just yet – and if it is, it’s a “lukewarm recovery” – occupancy rates have started to improve.
“I think people continue to find the right price point to accelerate absorption,” he said.
At AvalonBay Communities, a national development and management company that has built apartment communities throughout the Greater Boston area and where McLaughlin is a regional vice president of development, the occupancy rate has gone up to 96 percent. That represents a 3 percent to 4 percent improvement from six to eight months ago, said McLaughlin.
The high end of the market has been feeling the pinch the most. McLaughlin pointed out that rents in the Bay State’s higher-end market have dropped by 15 percent to 20 percent when concessions such as two months worth of free rent are figured in. “Prices have dropped significantly at the top end of the market,” said McLaughlin.
“The good news is, from a competitive advantage perspective, if we dropped rates by 15-20 percent, that has a ripple effect,” said McLaughlin, explaining that property owners of older, less expensive apartments have followed suit and reduced rents as well.
Unlike last year, when many property owners were caught by surprise by the slumping rental market, landlords today have taken steps to keep vacancies to a minimum, said Lawrence H. Fisch, president of Boston’s Preferred Properties.
Many of the larger apartment communities, for example, have offered incentives all year long, said Fisch, who noted that last year, property owners didn’t start offering incentives until late in the summer to get their apartments rented by September.
“This year, many people put their apartments on the market earlier. More properties became available earlier this year than last year,” said Fisch. “Many landlords have also changed their price strategy.”
More on Market
Property owners in Boston are anxiously eyeing Sept. 1, a time when many leases expire and college students flock back to the city.
“Many landlords have already reduced rents and are offering to pay [brokers’] commissions or are paying the first month’s rent,” he said. “But there are still a tremendous amount of apartments at this stage.”
As of last week, Fisch’s office had more than 1,070 apartments available, including about 100 in the Back Bay ranging from a studio without parking available for $750 a month to a luxurious penthouse with a monthly rent of $7,200.
About two to three years ago, his office would only have about 450 available apartments in all of Boston at this point, said Fisch.
“I remember a couple of years ago, we’d have 50 people looking for a one-bedroom and we didn’t have five,” said Fisch.
“The inventory that we have now is huge. It’s double what we normally have this time of year,” agreed Keith Mullen, manager of At Home Realty in Allston, which primarily handles rentals in Allston, Brighton and Brookline.
Mullen’s office recently rented a two-bedroom apartment in Allston for $1,250 a month that just a year ago commanded a $1,425 monthly rent.
“Business has been steady, but the educated renter is exhausting every resource and looking for the best deal out there,” said Mullen.
Typically, by this time of year, Landmark Realty, would be running out of available apartments to show to would-be renters.
“Usually, by now the [flow] of inventory slows down,” said Toni Gilardi, owner of Landmark Realty, which is located on Boston’s waterfront and handles sales and rentals near the city’s Financial District.
Gilardi has seen more apartments renting for between $1,000 and $1,200 a month than she has over the last nine years, she said. Just one to two years ago, those same apartments were renting for $1,300 to $1,600, she said.
Gilardi said she believes that job layoffs in the financial services industry have affected her business, as many young newly unemployed professionals have gone back to live with their parents. In addition, Gilardi said the low mortgage interest rates have convinced many to buy condominiums instead of renting.
“The low interest rates have pulled many into homeownership who were probably not ready for it and not anticipating it,” agreed McLaughlin.
In the long term, the stabilization of interest rates could help convince more people to stay in the rental market, according to McLaughlin. But in the short term, as interest rates creep up, the rental market could be hurt as renters fearing further hikes jump quickly into homeownership.
“People who are fence-sitters, they’ll jump. A lot of people will be forced to pull the trigger [on a home mortgage] in the next three months,” said McLaughlin.
Regionally, the MetroWest area – particularly communities west of Framingham – is “the most challenged” in terms of the ability of landlords to keep occupancy rates high, said McLaughlin. The South Shore, where the financial services companies have a major presence, is also suffering, mainly because of rising unemployment and because there has been a rapid increase in the supply of single-family and multifamily housing production.
Based on his own observations as an executive at AvalonBay and president of RHA, McLaughlin said he believes that the North Shore rental market has been “a little more resilient.” Meanwhile, Boston and communities along Route 128, such as Lexington and Burlington, which saw vacancies rise as the high-tech industry first began to struggle, have bounced back.
