NORTHEAST SNAPSHOT, FEBRUARY 2009

Boston Multifamily Market

Like many major markets across the country, Boston’s multifamily market remains active, albeit at a much lower level than in previous years.

“From a sales perspective, institutional assets are certainly not trading. Transactional velocity is down significantly on the institutional side. In the private world — for assets between $3 and $10 million — transactional velocity is down but deals are definitely getting done,” says Robert Horvath, a senior sales associate with the Boston office of Marcus & Millichap.

Horvath believes this is trend will continue into the year, with fewer large institutional deals and more small, private client deals. One thing Boston has going for it right now is that the area’s many colleges and universities creates what Horvath calls a “student hedge,” which keeps demand up even in tough times. Smaller properties with fewer units move fast, especially in the core market and cities such as Brighton, Cambridge and Somerville. Horvath doesn’t see this going away anytime soon, either, especially with many schools facing a student housing shortage.

“I think [these types of properties] are going to do very well and be very strong in 2009 if you can get the assets to trade,” Horvath says.

Unfortunately, the frozen debt markets are having a huge effect on new construction starts, but the bright side is that there is already a large pipeline of projects already under construction. North of town, the Route 128 Corridor is seeing significant activity, which is being driven by good density and significant demand. In town, demand is centered on mixed-use.

“There’s a significant pipeline of new assets, a lot of it being the kind of mixed-use developments with a retail component, housing — both apartments and potential condos — and then some office. There’s a number of these large developments right now.”

The revitalized South Boston area is seeing a lot of these projects, including the Pier 4 and Fan Pier mixed-use developments. This new development, along with the city’s new convention center and accompanying retail, has created an ideal place for new development.

“South Boston and the Seaport area is going to have significant multifamily development that’s going to piggy-back off of a lot of these larger mixed-use projects,” Horvath says.

Vacancy rates are increasing, a trend that is expected to continue throughout the year. Core assets remain in demand, but projects located outside the Interstate 495 beltline are struggling, with some submarkets seeing vacancies as high as 9 percent. Rents are also expected to decrease here, but the same can’t be said for the urban core, which will see rents stabilize or show a small increase.

“I think transactional velocity will be fairly slow in the first two quarters of 2009. I think it will pick up in the third quarter and into 2010,” Horvath says.

— Coleman Wood

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