"The multi housing market here basically has more supply than what is taken by the market," Shiawee Yang, a senior economic consultant at Torto Wheaton and an associate professor of finance at Northeastern University, tells GlobeSt.com.

The vacancy rates for the multi housing market here jumped from 2.7% last year to 3.8% at the end of this year and Torto is forecasting that that number will climb to 4.4% by the end of 2002. "That is a big jump," notes Yang. "It takes us back to the mid 1990s." According to Yang, a number of Boston suburbs are already seeing very significant jumps in their vacancy rates, among them Brookline, Watertown and Waltham as well as suburbs west of the city. "For 2001 the vacancy rates forecast were definitely realized in those towns and some of these towns will see even higher vacancy rates than what we're forecasting," says Yang. The anecdotal evidence is demonstrated in a story Yang tells of a broker she knows in Brookline. "In the summer she had almost zero units vacant, and now she has vacant units in the 100s."

Rents are getting softer but those numbers also reflect the increasing costs of managing property. For 2000, the average rent per unit in the area was $866.70. By the end of this year that number will be $901.54, which, says Yang, reflects the outgoing market through the summer. Torto is forecasting that by the end of 2002 the average rent will be $932.79. "That is averaged out," says Yang, "but there's also all the vacant space." Yang points out that many landlords are also giving concessions, which, she says, "we haven't heard of in years."

In terms of total stock, there will be a minor increase because of new construction in the Greater Boston area. By the end of 2000, there were 1,020,073 units in the area. That number will increase slightly by the end of this year to 1,023,808 and by the end of 2002 there will be 1,028,754 units in the area. This includes construction that was planned already and is slated to be completed by the end of that year. "This is why we have a negative absorption rate," says Yang. "There are more units and the vacancy rates are going up."

For Yang, the strategy that multi housing investors should employ is obvious: hold. "If you don't need cash or equity, the better financial strategy is to hold until the market gets better," she says. "Income won't suffer if leases are already signed."

Torto is predicting an economic recovery in the third quarter of 2002 but the multi housing market will still maintain vacancy rates of 2.3% and 2.4% respectively in 2003 and 2004 because of the new construction and the economy--which isn't terrible compared to the 7% of the early 1990s but is high compared to the boom of 1999 and 2000. "The recovery will have a lagged effect on the multi housing market," says Yang. "Multi housing market is fueled by young people leaving home. It is dependent upon people having jobs and what their level of income is. Also, people need to be coming into the Boston area for new jobs and that won't be for a while."

Instant Insights /

Multifamily Investors Advised to Hold as Market Faces Tough Times

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