In 2016, we wrote about how many downtown areas across the country suffer from an oversupply of apartments. Boston is no exception.
Here’s a look at Boston’s supply growth since 2010:
For a market historically characterized as supply constrained, Boston blows away most major metros in terms of apartments added.
You might assume most of that growth was in less dense areas. Yes and no. Let’s look at growth by submarket:
The majority supply additions landed in downtown, prime locations. North Cambridge/Somerville, the exception, draws demand in droves from Harvard and MIT—a veritable city unto itself.
So Boston ranks fifth nationally in terms of inventory growth over the past six years. And the majority of that inventory landed in three geographically small submarkets. Let’s take a look at the toll it’s taken on rent growth:
The bars depict the average monthly rent for each submarket. The blue diamonds chart rent growth from 10Q1 to 15Q3, and the yellow diamonds chart rent growth from 15Q3 to 16Q3. Rent growth is either negative, or is currently headed in that direction, in all the pricey submarkets.
To press the issue further, look at effective rent growth in stabilized luxury apartments (defined as 4&5 Star apartments with 50+ units built before 2016) over the past three years.
In fact, of apartment buildings meeting that criteria, nearly 40% currently offer some sort of concession according to CoStar Market Analytics. With 1,600 additional units scheduled to deliver in the first half of 2017 in these three submarkets, concessions will go up. By how much remains to be seen.
Landlords and property managers might be wise to offer slight concessions upfront for renewals. It could help them minimize churn, marketing costs, and the concessions they need to offer to backfill. In a renters market, renters tend to shop around, especially when they learn of impending escalations. Without leaving their neighborhood, they can go to a new community down the street to get a better deal. But why give them a reason to shop?