Boston’s Real Estate Market in a Boom

General Electric Co. (GE) broke ground for their new headquarters which is moving from Connecticut to Boston. GE will be joining the Boston development scene which is currently hosting 14M square-feet under development and 40M square-feet permitted with development on-the-way.

Of the new developments in Boston, around 80-percent are condominiums and apartments, and the majority of the remaining 20-percent is office space.

The Boston Planning and Development Agency’s director deemed the city’s current boom Boston’s historically largest building boom. Development is thriving, and GE isn’t the only one moving into Boston, but their move may be the largest sign that Boston’s building boom is flourishing and lucrative.

Real Estate Investments Turning Profits

Boston’s development scene continues to roll, and the developers who launched the movement, or at least got in early, have profited handsomely. Some real-estate investors have noted over 130 percent returns amounting to hundreds of millions of dollars.

Both local and foreign developers are behind real-estate projects underway and on-the-way in Boston. Of U.S. cities with the highest amount of foreign investments, Boston is just behind New York and Los Angeles. Real estate advisers are deeming Boston a strong market with continuously flowing foreign capital, lofty net asset investments, and historically high occupancy rates.

Not all Bostonians are Benefitting from the Boom

Currently, most established housing in Boston are low-rise buildings, but the majority of the residential condominium and apartment units under development are luxury high-rise buildings.

Boston is in a heavily talked about the housing shortage. Planners fear that Boston’s development boom is solely catered toward luxury housing and not enough low- and middle-income residences are on their way. Boston’s mayor has addressed the issue and provided that he plans to develop 53K low and middle-income residential units by 2030, but executing his plan hasn’t been smooth sailing.

Right now, the market is tight, and market prices are high. Therefore, market-rate is high and unaffordable to low- and middle-income families. In 2016, only 17 percent of completed residential units were considered below market-rate. The fear is that residents in many Boston neighborhoods will be displaced by the market-rate housing boom.

On October 4, a WBUR poll reported that Boston voters found housing prices to be the number one issue.

The Boston City Council is tackling the housing affordability issue head-on to help prevent the high-end market boom and rising market-rate from pushing Bostonians out of their homes.

Currently, the city of Boston doesn’t have an eviction rate tracking system—they only have data from the eviction cases which brought to court. The city council approved a home rule petition, the Jim Brooks Community Stabilization Act, to better track eviction rates and causes in Boston. The home rule petition will also provide more protection to Bostonians facing eviction.

The Jim Brooks Community Stabilization Act will use criteria to require certain landlords to notify the city at the time the landlord begins an eviction. The idea is that the city will have time to provide tenants with information, so they can best understand their rights in the eviction process and the community resources available to them. Every effort will be made to ensure Bostonians keep their homes.

Beacon Hill leaders are diligently working to find solutions to preserve existing housing and create new affordable residential units. Massachusetts’ governor seems to be on board proved by his announcement to allot $72M for subsidy housing development and provide 25 projects state-wide with federal and state tax credits.

The governor said the goal of allotting subsidy housing funding was to support the development and preservation of low-income housing and transitional housing to help alleviate homelessness. The governor provided that affordable and safe housing is the required foundation for Massachusetts’ residents to thrive and that vulnerable populations must be supported including those who are 55 and older.

Alongside the governor, mayor, city council, planners, and community leaders, the Statehouse is focusing on the significant need for housing in Massachusetts. Dozens of bills have been filed to address the escalating housing shortage including redefining affordable housing, addressing the development of affordable housing in specific communities, efforts to stabilize the rental market, providing the option to tenants in three-or-more-unit residential buildings to assert the right of first refusal and purchase the building at a fair market value, and to prevent homelessness—The Statehouse is addressing many aspects of the “boom.”

The Boston City Council provided that more work is needed as the pressures on affordable and subsidized housing in Boston will only continue as the development boom rages-on.

The Booming Boston Ecosystem Continues to Attract Growth

Populations are growing in downtown areas across the nation, and Boston is no exception. Boston’s city living is attracting new Bostonians with an eight percent population growth amounting to 50K people in the past six years—that’s more than Boston’s population growth for the prior three decades combined.

Boston’s ecosystem is drawing in people, businesses, and developers. The Boston region boasts 55 educational institutions, is a big-spender on research and development, and has a lot of tax incentives, so there is something to offer for everyone and attracts big companies like GE.

Boston’s giant nearly $15B infrastructure development project was completed in 2007. The project brought a major highway artery underground, allowing Bostonians to enjoy a more walkable city including many additional parks and increased pedestrian access to the waterfront.

While Boston’s many assets and low unemployment rate of 4.3 percent continue to attract newcomers, labor remains underutilized, and the housing market continues to tighten.

Markets are Holding and Rates are Rising

Massachusetts’ economy is thriving. With the thriving economy came high rents and home prices—especially in the Boston area. Severe price escalation is more prominent in Boston due to the inpouring of top talent, companies, and sectors into the city like technology professionals, GE, and a swell in the life sciences sector.

"Condo Market"

Thousands of new condos are under development in Boston, but the condo market has not flinched—it remains invigorated with no slow-down in sight. Condo and single-family home sales and median sales prices are up more than one-percent from 2015.

"Rent Rates and Leasing Market"

The rental market has also seen no hiccup—developers see rents continue to rise. For instance, monthly rates for high-end apartments in the Fenway Park neighborhood have increased 2.5-percent year-over-year, now ranging from the high-$2Ks to the mid-$3Ks.

But it’s not just the Fenway Park neighborhood, Massachusetts’ median monthly rent is $2.6K, and overall Boston rent prices also loom over non-home owners with a median monthly rate of $2.7.

The leasing market is strong, and Boston developers don’t foresee problems with asset performance. Older towers may not continue to see the strong leasing market trend due to difficulty adjusting to the myriad of currently expected amenities, but new high-end developments should continue to perform well.

"Ultraluxury Market"

The ultraluxury market is new to Boston and is debuting in the city as the One Dalton tower joins the skyline. The One Dalton developer provided that the tower’s most expensive unit has already sold, and the tower is projected to be a success. We will wait to see the outcome of One Dalton and its effect on a possible expansion of Boston’s ultraluxury market.

"Office Market"

Developers have seen office vacancy rates declining since a post-market-crash high of 14-percent, but first quarter 2017 saw a slight increase in office vacancy from 13.7- to 14-percent.

Real-estate developers in the office market are currently launching more speculative developments. That means the buildings are under construction without many tenants locked-in. Of the office space under construction, only 37-percent has been pre-leased.

"Home Values"

At the beginning of the summer, home values in Massachusetts were up 7.2-percent year-over-year. A few cities made the state’s home value year-over-year increase appear miniscule including Springfield at 8.6-percent, Cambridge at 10.7-percent, and Boston nearly doubling the state increase at 11.5-percent.

The Massachusetts median home value is $375.5K, meanwhile, in Boston, it’s $558.3K.

Year-over-year Massachusetts home values are up and are projected to rise 3.3-percent over the next year.

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