Where is the Boston multifamily market heading in 2015? We sat down with the experts in our multifamily division to see what they had to say about next year and hear their predictions. Additionally, we talked about the 8,000 luxury units coming online within the next few years – what does this mean overall?
What are some of the trends and predictions for 2015 in the Multifamily Market?
In 2014, we continued to see a high percentage of the acquisitions being funded by cash from international investors. This strong demand has pushed prices higher and cap rates upon acquisition have leveled off to the mid 4’s to low 5’s in Boston’s premier areas.
Although a large percentage of the acquisitions were being funded with cash, many of those purchases are eventually stabilized with debt. The ease of access to relatively cheap debt has led to the continued strength of our market. As long as this debt remains available and cheap, 2015 should look a lot like 2013 & 2014.
We still have many sellers in our wheelhouse of off market properties and buyers snatching these up on a daily basis.
In the next three years, more than 8,000 luxury units are expected to come into the Boston Market, what could be some of the effects (if any) of these developments in the Multifamily Market?
The luxury market typically has little effect on the existing multifamily market. Many of the existing product types may be newly renovated but often do not offer the amenities that the luxury full service buildings offer. As a result, the pricing may vary dramatically.
Many of the new units being delivered to the market place are expected to command prices as high as $6 p/sf. Alternatively, the existing multifamily market might be in the $3-$4 p/sf range. However, in the event that the luxury market becomes saturated and the developers are not successful (in flipping the apartment product into condo units), then the only way to maintain high occupancy would be to lower the rent.
Should this happen, luxury product suddenly becomes more affordable and then renters have more options. In this case, the rents for existing multifamily stock would have to be adjusted accordingly.