Apartment construction is expected to be depressed through 2028 because of rising construction costs, interest rate increases and regulatory pressures. iStock photo

Given the ongoing lack of new supply in both the urban and suburban markets of Boston and continued growth in demand, we expect rents in 2025 to grow at similar levels to 2024, which averaged approximately 3.5 percent across all submarkets.

In the newer class A properties, we saw lease trade outs in the 5 percent to 8 percent range, indicative of strong demand.

In 2024, we saw a historic peak in new deliveries in Greater Boston with 8,250 units delivered, which represented an 18 percent increase over 2023 levels and 46 percent over 2022 deliveries. 2025 deliveries are projected to be 8,000 units.

New construction starts are down dramatically driven by rising construction costs, interest rate increases and regulatory pressures, and less than 3,400 units are projected to be delivered in 2026. We expect a few years of depressed supply 2026-2028, and then a rebound.

Sharp Increase Anticipated in Investment Sales

Greater Boston will see approximately $4 billion in apartment sales in 2024, a sharp increase from $1.5 billion in 2023.

Next year’s sales volume is expected to rise dramatically as interest rates drop, institutional investors re-enter the market after two years of inactivity, and previously reluctant sellers decide to capitalize on improved pricing.

Cap rates for institutional quality assets averaged in the 4.75 percent to 5.0 percent range in 2024. We expect downward pressure on rates/upward pressure on pricing in 2025 with anticipated lower interest rates and investment capital continuing to come off the sidelines.

Chris Phaneuf

‘Renter-for-Longer’ Demographic is Here to Stay

Lower rates will bring down home mortgage rates, which may impact renter demand, however, the high cost of home purchases in Greater Boston will continue the “renter for longer” dynamic that we’ve seen here over the past several years. The investment sales market will benefit from lower rates, which will translate into higher sale prices.

After sharp increases over the past few years, development costs have somewhat stabilized, although they are still at historically high levels making new development challenging. No meaningful decreases are expected for the foreseeable future.

Chris Phaneuf is a senior managing director of investment sales at Berkadia’s Boston office.