Boston Apartment Market Decidedly Tilted Toward Landlords

In its latest report on the Boston apartment market, real estate investment specialist Marcus & Millichap says that circumstances are not only in landlords’ favor, but will likely remain that way in the medium term.

Boston—In its latest report on the Boston apartment market, real estate investment specialist Marcus & Millichap says that circumstances are not only in landlords’ favor, but will likely remain that way in the medium term. Eventually, however, new product and residents seeking more affordable housing options will form a ceiling on rental growth. But it hasn’t happened yet.

The improving employment picture and a severe shortage of supply within Route 128 (I-95, which makes a semicircle around greater Boston) has tightened the overall market’s vacancy below 3 percent, according to the report. By the end of 2012, asking rents will reach new record highs.

In fact, the company predicts, rents will reach uncharted territory as owners boost asking rents 3.4 percent to $1,805 per month by the end of the year. Effective rents will rise by 3.9 percent to $1,723 per month. This shows how much landlords are in the catbird seat, since during 2011, asking rents rose only 2 percent and effective rents climbed 2.3 percent.

The trend has already had the effect of igniting an apartment building frenzy throughout metro Boston. Nearly 1,500 units are currently under way in Suffolk County, for example, all of which will come online by 2014. Eventually, the increase in multifamily rental stock will probably moderate rent increases, but the impact won’t be felt by landlords or tenants in the immediate future.

Rising rents are having another impact on the area as well, the report notes. “Demand in outlying areas is gaining steam as young professionals are being priced out of the core,” it explains. “Families and empty-nesters alike are also migrating to the suburbs, where newer developments offer a sense of connection to the community similar to urban settings at more affordable rates.”

Developers are capitalizing on this trend and transforming areas near major transit stations into master-planned communities. One example is redevelopment of the South Weymouth Naval Air Station, known as Southfield. The first phase of the mixed-use project in Norfolk County was recently completed, thus adding 225 residential units to the area.