Multifamily real estate remains the preferred asset class in the Boston market in early 2012, as sale volume continues to outshine other asset classes.

According to Integra Realty Resources’ extensive national database, total sale volume of investment grade apartment properties increased 22 percent on a national level in 2011 over 2010; in Massachusetts, total sales volume of investment grade apartment properties increased by 28 percent during the same time period.

On a national basis, the average price paid per unit inched upward slightly by approximately 2.25 percent from 2010 to 2011. Massachusetts saw only a marginal increase of .60 percent.

Capitalization rates, however have continued to decrease. Nationally, the average capitalization rate in 2010 was 6.44 percent, while in 2011 the average capitalization rate decreased by 75 basis points to 5.7 percent. Massachusetts continues to fare better than the nation overall, as the average Massachusetts’ capitalization rate declined 90 basis points, from 6.24 percent in 2010 to 5.34 percent in 2011.

So far in 2012, investor sentiment remains extremely upbeat for apartment properties, as significant rental increases are expected and vacancy continues to decrease. Of the 58 markets covered by Integra Realty Resources’s offices, the great majority is either late in the recovery stage of the market cycle or in the expansion stage, and the majority of respondents felt that cap rates would continue to decline into 2012. Cap rates for Class A urban properties in the Boston market are currently hovering between 4 percent and 4.5 percent.

Boston is one of the strongest urban apartment markets in the country, and over the past two years, vacancy rates have steadily declined and rental rates have risen. Over the past several months, Boston has moved from the late stages of recovery to the expansion cycle. Boston benefits from its position as a center of higher education. A rise in the student and post-graduate population in the region has created growth in the young professional renter demographic. The lack of new single- and multifamily housing over the past several years has also benefited the existing multifamily housing stock, as has improving consumer confidence and an improving job market.

South Boston Waterfront Boom

While the strength of the multifamily market is evident throughout Boston, the Fort Point Channel/Seaport neighborhood spotlights recent trends and activity. This neighborhood has benefited from several infrastructure improvements over the past 10 years, as well as the new convention center at the intersection of D and Summer streets. The infrastructure improvements, the convention center and the private-sector developments taking place in the South Boston Waterfront District have had a positive impact on the desirability of South Boston as a residential neighborhood, and many new projects will get under way in 2012.

Multifamily projects planned or proposed in the Fort Point Channel/Seaport neighborhood are:

• Pier 4, 136-146 Northern Ave. at Seaport Boulevard– 357 units;
• Fan Pier, 1 Marina Park Drive – 175 units (condos);
• Waterside Place, Summer Street at D Street/Congress Street – 235 units;
• The D Street Residences, Phase I – 377 units;
• The D Street Residences, Phase II – 208 units;
• 319 A St., rear – 202 units
• 63 Melcher St. – 38 units
• 381 Congress St. – 44 units
• Waternark Seaport – 300 units

The most recent multifamily development to be built in the Seaport District is Park Lane Seaport, 1 Park Lane. This 465-unit complex was developed in 2006, and includes 20,000 square feet of retail space and garage parking. This property sold in December 2010 for $193.8 million, or $416,774 per unit.

Typical Class A two-bedroom units in this market rent from between $3,200 to $5,200 per month while one-bedroom units range from $2,500 to $4,000 per unit. Occupancy rates at Class A properties range from 94 percent to 100 percent. While the large number of proposed units may at first cause concern, the development of Vertex’s 1-million-square foot office/lab facility and other proposed projects will bring many new renters to the neighborhood. Also, the neighborhood has benefited from several new restaurants.

Multifamily properties are the preferred asset class for investors in the Boston market due to significant rent growth expectations, an improving job market, increases in the student and post-graduate population and desirable amenities within the city.

This asset class is poised to receive continued and increased investments in 2012 for its stable cash flows and appreciation.