The Cove in Hingham sold in 2021 at record suburban pricing of $139.25 million. Constructed in 2020, the 220-unit complex at 350 Beal St. includes a pair of 4-story elevatored buildings and 10,000-square-foot sky lounge overlooking Care Cove Park. Image courtesy of CBRE

2021 was a year of recovery for the apartment market. With renter traffic and demand stronger than ever, occupancies and rents were driven higher than pre-pandemic levels. The key trend has been lease trade-outs, in which select properties have capitalized on demand and experienced upwards of 30 percent rent growth over third and fourth quarter 2020 leases. 

Historical sales volume of over $4.7 billion for the year represented a 71 percent increase over 2020 and a 20 percent increase over 2019. Greater Boston remains one of the most desirable markets for capital, with stability coming from the top-ranked “eds and meds” sectors as the No. 1 life science market in the world.  

Over the year, occupancy levels have averaged nearly 97 percent. With availability at historic lows, landlords have experienced robust rent growth averaging 10 percent year-over-year. The strongest rent growth has been seen on trade-outs (or new move-ins), which have been the best real-time indicator of market rents while providing an opportunity for organic rent growth going into 2022. 

With growing construction costs and a shortage of development sites, 2021 had 20 percent fewer new apartment deliveries than the year before and the fewest number of deliveries since 2015. With nearly 20 million square feet of lab and office space under construction, Greater Boston is set to experience an influx of new affluent renters over the next few years, providing further upward pressure on rents. 

A Record Year for Investment Sales 

After a strong fourth quarter of 2020, sales activity was at an all-time high in 2021. The number of sales over $10 million increased by 25 percent over 2020, with strong pricing appreciation as NOIs grew and debt and equity markets aggressively bid for assets. Of note was the number of large transactions, twice the number over $100 million from 2020, with a record five transactions over $195 million. 

Overall sales volume increased by 71 percent for the year, with 80 percent of transactions located in the suburban markets and class A sales volume up nearly two-and-a-half times. The market experienced record pricing on a few suburban transactions, with some of the strongest investor demand and pricing in secondary markets such as southern New Hampshire and Maine. While there were fewer urban transactions, pricing appreciated nearly 30 percent as fundamentals stabilized and pent-up capital remained focused on the Boston market. 

Looking ahead, we anticipate 2022 to look much like 2021, with strong rent growth, stable occupancy levels and an enormous amount of available capital. Landlords have begun capitalizing on strong rental demand and rent growth, which is expected to continue into 2022. With capital and debt markets likely to be aggressive, we anticipate cap rates and interest rates to remain steady. 

With employment trends nearly back to pre-pandemic levels, employers should be bringing employees back to the office throughout the year, which will provide further expansion throughout the primary rental markets. Additionally, with our life science market expected to double in the next few years, this sector should provide further growth in the housing market. 

Simon Butler and Biria St. John are vice chairmen and John McLaughlin is a senior vice president with the multifamily investment sales team at CBRE. 

Rent Growth Propels Apartment Market Gains

by Banker & Tradesman time to read: 2 min