JOHN DONOVAN
A ‘stellar’ year
While real estate brokers are working harder to sell homes and dealing with rising inventories and falling prices, the rental housing market in Greater Boston is on the upswing.
Rents are creeping up, apartment vacancies are down and landlords are offering fewer concessions to tenants in most markets. Industry watchers say rental housing is benefiting from the Bay State’s economic growth and job gains and a cooling of the condominium market.
“We’re seeing some firming up [of the rental market],” said Richard Robinson, an executive with Apartment Realty Advisors New England in Boston. “There’s definitely a reduction in concessions and an increase in effective rents for most of the markets in the Boston area.”
Occupancy rates at properties in communities around the Massachusetts Turnpike and Route 128 have climbed anywhere from 1 percent to 2 percent within the last three to four months, noted Robinson.
The Northeast Apartment Advisors, an Acton-based firm, reported last week that the absorption rate in the Boston metropolitan-area apartment market shot up, averaging 482 units per month. That represents a 162 percent increase from the fall and winter, and occupancy has gone up 1 percent while effective rents – asking rents minus the tenant concessions offered – rose 3.6 percent, according to NAA’s spring/summer 2006 report.
“Improved market fundamentals have finally allowed the current Boston metro average effective monthly rent of $1,355 to return to the level recorded in our first report in spring 2002,” stated the NAA report, which surveyed 529 market-rate apartment communities in April and May. “The rental market is now fundamentally solid and, we believe, will experience real rental growth averaging 4 [percent] over the next 12 months.”
The news comes after a slump that saw larger property owners dealing with a greater number of vacancies and offering various incentives to attract new tenants. Experts attributed the softening of the market, which began more than four years ago, to a fresh supply of newly built apartments in and around Boston, job layoffs, a weakening economy and low mortgage-interest rates, as well as special homebuyer programs that spurred many longtime renters to become homeowners.
“It was real tough,” acknowledged Lawrence Fisch, president of Boston’s Preferred Properties. “Landlords took a beating.”
Fisch said many owners responded to the shifting market by adjusting rents and making significant property improvements. Many landlords renovated kitchens and bathrooms in hopes of retaining exiting tenants and spruced up common areas, he said.
The improvements have paid off for many landlords with whom Fisch works.
“Tenants are looking to find the most value for themselves,” he said. “The better property will rent before the inferior property.”
These days, business is brisk at Fisch’s firm. “We’re extremely busy. We’ve had a lot of customers, good listings,” he said. “We’re making deals consistently every single day.”
Recovery Mode
John Donovan, director of leasing and marketing for Devonshire – a luxury apartment building in Boston’s Ladder District – said he is pre-leasing apartments a month to two months in advance of their availability.
“It’s been an absolute stellar year,” he said. “My assessment is that the rental market has definitely recovered from the slump it was in.”
Donovan attributed the recovery to a stronger economy and high condo prices, which have made it difficult for tenants interested in purchasing property.
The median price for condos sold through April of this year in downtown Boston – which includes the Back Bay, Beacon Hill and the South End – was $482,500, according to statistics from The Warren Group, parent company of Banker & Tradesman.
Many Devonshire tenants who were searching for a condo ended up renewing leases because they couldn’t find a unit they could afford to suit the lifestyle and amenities to which they have become accustomed, said Donovan.
With a small one-bedroom condo in some downtown Boston neighborhoods costing as much as $500,000, Donovan said many people are discovering they can get more square footage for their money by renting.
Devonshire – located within walking distance to many downtown law offices and financial services companies – has seen an increase in tenant retention of nearly 20 percent over last year, according to Donovan.
Conversions of existing apartments into for-sale condos have helped to offset the effect of thousands of job losses since 2001 and the torrid pace of condo sales, according to the NAA analysis. Some 4,200 rental units have been taken out of the market from the beginning of 2005.
But rental housing is being produced in the Boston metro area. Nearly 7,000 market-rate apartments are expected to be complete this year in the Boston metro area, NAA reports.
The apartments that are being constructed are typically “very high-end,” said Robinson, who noted that developers are providing more upscale finishes and amenities.
One sure sign that the rental market is tightening is that fewer apartment property owners are offering concessions. In the past, landlords were advertising up to two months of free rent.
That’s down to between one and one-and-a-half months of free rent, while in cities and towns along the Massachusetts Turnpike and Route 128, it’s dropped to between a half-month and full month of free rent, Robinson said.
The NAA report revealed only 32 Class A apartment communities and 40 Class B apartments – or 25 percent and 61 percent fewer than the fall and winter, respectively – offered any type of concession.
Researchers are projecting continued strength in the rental market in upcoming years, with immigration and the growth in the number of young minority households helping to fuel demand for rental housing over the coming decade.
A report released by Harvard University’s Joint Center for Housing Studies last week showed that 2005 was the first time in years that the number of rental households grew and rental vacancy decreased.
Apartment production has not kept up with demand, particularly in the Northeast, which lags behind the rest of the country in the creation of new rental housing, the Harvard report shows. Condo conversions also helped to reduce the inventory of apartments nationwide, by at least 195,000 last year and 63,000 in 2004, the report revealed.
Strong demand and a short supply have pushed rents up, and many units are no longer affordable to those with low incomes. In fact, the supply of apartments affordable to those earning $16,000 or less annually shrunk by about 13 percent from 1993 to 2003, according to the report.
