The success of Trinity Place, which opened in Boston in July 2000, ended a 10-year luxury condominium development lull in the city.
Boston’s luxury condo market has softened? Not according to some downtown real estate observers who say the numbers don’t add up to the gloom and doom that many have perceived.
According to at least one analysis, fourth-quarter 2002 numbers might reveal a small slide in total transactions of luxury condos and townhouses, but values have held steady. And the surprising news, they say, is that values and buyer demand have remained stable despite an unstable economy, stock market volatility and a drop-off in the very high end of the market.
“2002 is going to end up surprising a lot of people,” said Kevin J. Ahearn, president of Otis & Ahearn, a residential brokerage and marketing company based in Boston. “The year will finish stronger than 2001 and only slightly behind the record year of 2000.”
In fact, sales volume for condos priced from $1 million to $3 million was greater in the first three quarters of 2002 than during the same period in 2001, according to a market study of third-quarter results conducted by Otis & Ahearn. The study cites information collected from LINK, a Boston multiple listing service. Sales of condos priced above $3 million fell off during that period.
Some 124 condos priced between $1 million and $3 million were sold during the first three quarters of last year, up 34.8 percent from the 92 condos sold during the same months in 2001. Last year’s sales of condos priced $1 million to $3 million represents 5.8 percent of all condo sales downtown, while in 2001 sales within that price range represented just 4.3 percent of total sales transactions.
Meanwhile, sales volume fell considerably for condos priced at $3 million and above. Eight condos over the $3 million price tag were sold in the first three quarters of 2002, a 53 percent drop from the 17 that were sold during that period in 2001.
Aggressive price increases, however, were not a common practice last year.
“Price growth has definitely slowed down, but demand is definitely as strong as it’s ever been,” said Tim Marsh, vice president of Marsh Properties in Boston.
Active marketing and sales efforts continued for a number of new high-rise Hub developments and condos in 2002, including The Belvedere at Prudential Center on Huntington Avenue and The Residences at The Ritz-Carlton Towers.
“What I noticed is that as each new luxury doorman building comes to market it [draws] customers from some of the other existing luxury doorman buildings,” said Marsh.
Marsh pointed to 2002 sales at the newer properties, while older luxury properties with the most desirable addresses – like the Four Seasons and the Heritage – had fewer sales.
Twelve units were sold at The Belvedere last year, with an average selling price of $1.67 million, or $906 per square foot, according to a report by Marsh Properties, while 22 units were sold at The Ritz property with an average price of $1.7 million, or $972 per square foot. At the Four Seasons, only one unit was sold and the Heritage had three sales.
“Some segment of that marketplace is going to be attracted to the latest thing in town and the higher-grade finishes,” said Marsh.
This year, the city will see more marketing and pre-marketing on a number of new high-end condo projects that are on the horizon, including Park Residences on Stuart Street and a mixed-use development at the state’s former Saltonstall Building called Bowdoin Place. With all the new development and competition to attract buyers, companies will be opening new marketing and sales centers, which were common in the 1980s. In addition, Web sites are being created to tout those projects, said Ahearn.
Development Wave
The development of such projects during the last four years stands in contrast to a 10-year lull that started in the late 1980s when virtually no new development of large high-end condominium projects took place. During those years, developers were hesitant to build because there was a huge inventory of condos that were left over from the development boom in the 1980s. It took years to sell off those units and for prices to start to appreciate again, explained Tom Meagher, president of Northeast Apartment Advisors in Acton. Once the economic outlook started to look up and new jobs started surfacing, the demand for housing also increased.
The success of Trinity Place, a luxury condominium project in Boston’s Back Bay that opened in July 2000 with strong pre-sales, was followed by other developments.
“It [Trinity Place] set the tone for demand for high-end condominiums,” said Meagher.
With the increased building activity during the last four years, some in the real estate industry have been concerned about inventory build-up and value erosion, fearing that the broad buyer demand downtown that existed for several years could be slowing down.
Yet, according to Otis & Ahearn, any slowdown could be a temporary reaction to the threat of war and the suffering economy. Also, buyers in the marketplace have the perception that the housing market should be softening because of the overall economy, which could be slowing down transactions, said Ahearn.
“But then buyers see that values are holding,” said Ahearn.
The good news, according to experts, is that there are strong fundamentals that will keep demand up in coming years, including the big population of empty nesters or baby boomers who will be seeking condos. Furthermore, Boston has little undeveloped land available and a stringent and expensive approval process.
“The future is extremely bright for high-end condos in the city,” said Meagher, citing the growing number of baby boomers who will flood the market looking for condos in coming years. According to Meagher, the bulk of the baby boomer generation will reach 60 in just three years. Demographics such as that, along with the fact that Boston is a relatively safe, low-crime city that offers many amenities, will keep demand strong.
Currently, there is a four-months supply of inventory, or roughly 1,000 condominium units on the market in Boston, according to Ahearn.
“If you check with any industry leader on a comfortable absorption level, they will tell you that four or six months’ supply is good,” he said.
