Vacancy in Boston continues to pace well below the national average, even beginning to rival lows seen in cities like New York and San Francisco. Marcus & Millichap projects that overall metrowide vacancy will fall 50 basis points to 3.5 before the end of 2012, with the downtown area dropping even further to 3.1 percent.
One of the main factors contributing to such low rates is the fact that construction of new inventory has remained minimal over the past three years. In 2011, fewer than 1,000 units were completed, below the 1,200 new units built in 2010 and far below the over 4,000 units completed in 2009.
However, this lag is expected to reverse before the end of this year, with Marcus & Millichap projecting nearly 1,500 units to be built in Suffolk County in 2012. These units should come online by 2014 and perhaps ease rent growth in this increasingly expensive market.
In the meantime, as rents continue to pace steadily upward in the city’s core, many young professionals are seeking refuge in outlying areas such as Brookline and Newton. While effective rents in the central part of the city have reached a whopping average of $2,623 per month, rents in the suburbs range between $1,173 to $2,151 per month—still expensive relative to the rest of the nation but more viable regionally.
Another important factor driving the reduced vacancy and high rents is, of course, job growth. To date this year, employers in Boston have added more than 31,000 workers, expanding the overall workbase by 1.3 percent. Marcus & Millichap notes that this is a significant improvement from the second half of 2011, when only 6,000 jobs were created.
Driving the gains in employment is growth in the technology sector, which can be attributed to the city’s highly educated workforce, many of whom graduate from renowned universities like Harvard, MIT and Boston University.
Overall, the unemployment rate in Boston has plunged from 8.6 percent at the height of the recession to the low-5 percent range, and Marcus & Millichap projects that the city will add a total of 46,000 jobs by year’s end, translating to the largest annual growth in over a decade.
The sharp rise in employment will be enough to generate many new high-end properties over the next couple of years, and many such projects of interest will be located along the increasingly popular South Boston Waterfront. One of the most notable of these will be the Seaport Square project, a 6.5 million-square-foot mixed-use project being developed by Gale International and Morgan Stanley Real Estate. Once completed, the project will expand the city’s inventory by 2.9 percent.
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