Multi Housing News July 2012 : Page 28
Vacancy Rate Trends Boston New Haven Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics *Forecast “There’s been a tremendous expansion in the planning and develop-ment of multifamily rental housing,” says Liu. “My perception over the past year-and-a-half or so is that the national players and institutional multi-housing developers have taken an increasingly dominant role in the marketplace, which seems to be of an ever-greater proportion of the work compared with the small local multifamily developers.” According to Liu, the dominance of these national players has led to an increase in larger development projects, as opposed to the smaller boutique projects typically favored by local developers. David Cary, managing director at Integra Realty Resources in Boston, emphasizes the expanding urbanization near the Boston metro area and the gravity shift toward renting due to continued fi nancial barriers to homeownership. “People are wanting to live more in Boston and the city itself, so that’s been a good thing for the city,” says Cary. “For the suburbs, I think you’re looking at people not being able to afford the down payment for homes, and that’s fueled the occupancy numbers and rents increasing and so forth.” Cary adds that while rental rates continue to move up in Boston and outlying areas, other parts of New England such as Connecticut—while not necessarily performing poorly—remain somewhat fl at. “I think the rental rates have been more stagnant there [in Connecticut],” says Cary. “You haven’t seen the increases that you’ve seen in the Boston metro area.” Indeed, Marcus & Millichap’s Q2 2012 Apartment Research Report for Boston showed rents increasing over 8 percent in the past three years, this while home prices were fl at and new apartment construction fell below existing permits for development. Meanwhile, rental rates in the New Haven, Conn. metro area rose by 3.6 percent, while vacancies remained low at 3.5 percent. Todd Tremblay, senior associate at Marcus & Millichap, highlights this strong showing in the Boston market while emphasizing single-family lethargy and lack of multifamily construction. “Vacancy has continued to decrease and is close to zero in core mar-kets such as the Boston/Cambridge area,” says Tremblay. “The sales for residential homes remain sluggish, and supply of new construction apartment units remains below historic norms, driving the increase in overall rents and decreasing vacancy.” Where the money is While multifamily across the region is performing well, different asset classes have varied concentrations of investment activity—as is often the case. David Cary of Integra says top-of-the-line assets currently make up the strongest corner of the market, with cap rates being a prime indicator. “I would say the A market is very strong,” says Cary. “The core A prop-erties are probably performing the best, followed by the B. The real ter-tiary markets and secondary market-type properties are a little bit fl atter. Cap rates are not decreasing as much as they are in the A and the B.” Todd Tremblay at Marcus & Millichap agrees with this observation and explains why cap rates—especially for Class A—are trending so low, and the effect that this is having on less equipped investors in the region. “Quality A-class apartments continues to be one of the most sought after asset classes in the marketplace,” says Tremblay. “High demand, lack of supply and low interest rates are driving the compression of cap rates. Class B and C properties are seeing the effects of this as investors who are unable to purchase Class A properties are forced to consider B and C properties.” Cary echoes the point that Class A properties in the region have con-siderable barriers, but iterates that good opportunities for investment exist with respect to lower-tier products. “I think that a lot of people are fi nding it very hard to compete,” says Cary. “It’s reached a point now where it’s tough for people to be in that market—you’ve got to pay so high for the good quality stuff. I would guess that [they’re focusing on] the value-added stuff, the more secondary loca-tions, Class B, Class C, that you can turn around a bit and upgrade a bit.” Liu at The Architectural Team points out a dynamic beyond asset class that is serving as a selling distinction in the current market, creat-ing a focal point to which investors might have to pay attention in the near future. “As the market becomes more crowded, the competition between the players in the market becomes fi ercer, and everyone is looking for the edge in the market,” says Liu. “More broadly, there is always a balance between amenity and price, and it has been my perception that a year to a year-and-a-half ago, we heard more about amenity, and it seems to me that there is less of an emphasis on that now and more in terms of price point.” 28 July 2012 | Multi-Housing News
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