In the last 10 years, Boston has evolved into a different city that now is experiencing population growth as new neighborhoods become hot spots of multifamily activity.
The market’s strength has attracted a diverse buyer profile, encompassing both private capital and foreign investors who have seen Boston become a more desirable place to live. Young people looking for a place to live in Boston are setting the amenity agenda, with owners and buyers finding ways to add value to property based on the changing needs and desires of renters.
Here’s our take on the current market trends and what this means for those looking to invest in multifamily:
The Amenity War Rages On
As new multifamily properties come into the competitive Boston market, owners and developers have found that the standard amenities are just that – standard. No longer will a state-of-the-art gym or eat-in kitchen mean that your property will attract young city dwellers. We’ve reached a new level of what renters and buyers are looking for in a home, and those owners and developers are competing with one another in a game of one-upmanship. It’s a full-on amenity war.
From the roof deck and pool and sweeping views at One Canal to doggie day care at One North of Boston, Bostonians of all ages are finding themselves smitten with the latest and hottest trends. Real estate professionals have also benefitted from the war, finding that Millennials and empty-nesters alike are interested in experiencing all that these amenities have to offer. Dog washing stations, rooftop community gardens, outdoor fire pits, yoga and spin studios, fitness-on-demand studios, boxing studios and more are also a sales tool and fit into the larger amenity trend in urban areas.
Value-add Properties Are Heating Up
Developing exciting amenities is one way that owners are adding value and investing in the property. In fact, value-add is one of the hottest spaces in the market right now, and it looks like it will only continue to heat up. While deals can be hard to find in the Boston market, the majority of the housing stock in Boston is turn-of-century stock (the last century, that is) and 1970s vintage that is in dire need of upgrades. These deals are being aggressively bid as buyers see the opportunity to achieve outsized returns by making substantial investments in the properties, upgrading both unit finishes and property amenities.
Sites like South Boston’s Carson Tower Apartments and Waltham’s The Ridge (just 10 years old) illustrate this trend in action. For portfolio properties across the region, owners should consider how to add value to update a property. Quite often it takes a new owner to see the potential and vision for a property. These new owners are putting the properties back on the market once the improvements are complete or they have proven the value-add story to capitalize on their vision and achieve the desired returns on their investment.
Investors See Predictable Growth
Value-add is just one strategy that investors find to be compelling in the Boston market. With the pending fallout of Brexit and uncertainty in the international economy, Boston is a beacon of hope for investors. Young people and empty-nesters continue to move into the city as they recognize it’s a desirable place to live and work. The demand for multifamily means there is an opportunity for consistent cash flow for both U.S. and foreign investors.
This demand is driven in large part by the diverse and strong economy of Boston built on the education, healthcare, life sciences and technology industries. Robust year-over-year job growth and a low unemployment rate of just 3.5 percent also contribute to a lower risk associated with investing in Boston’s multifamily stock. The city continues to boast strong renter demand, with job growth bringing more residents each year. In recent years more college graduates are staying in the city, including a rising number of international students. This growth only reinforces demand and the strength of the market, and presents an opportunity given that Boston hasn’t historically seen such attractive housing options since the urban development of the 1970s.
Investing in multifamily properties in Boston doesn’t just mean overhauling apartment buildings and dreaming up the newest trendy amenity. Greater Boston is also ripe with opportunity, whether that’s the conversion of industrial space into brick-and-beam condos or the walkable, connected communities that fall along the MBTA commuter rail, giving homeowners a direct line to the city – for work and for play.
The market’s growth mirrors the transformation of Boston as it attracts young, talented workers to its technology and life sciences community or becomes even more attractive to Baby Boomers who are downsizing and decamping from the suburbs. Investors should – and will – take note.
Simon Butler is a vice chairman and partner at CBRE/New England.
