Boston Apartment Market Still Strong Despite Condo Sales

Despite sluggish job growth and blistering condo sales, the metro market had positive absorption of 1,658 units since last June even though landlords have had to make concessions to fill vacant units. With 4% more properties offering concessions during that period, renters are among the big winners in the market but Meagher says landlords are also holding their own.

"We're still at 95.1% occupied," he notes. "That's a rate most areas around the country would envy." With 2,500 rental units taken off the market for condo conversion last year and 4,900 new condo units slated to be completed this year, the apartment market has grown tighter. Even with apartment construction increasing 15%, or 4,559 units, from 2003 and job growth declining by 180,000 jobs, Meagher says apartment rentals should remain strong for the short to mid-term.

Investors also remain positive about the region's supply. "There's been an insatiable appetite to buy larger apartment developments here in the Boston market," Meagher says, noting that despite investor interest, CAP rates have remained relatively low at 5% to 7%, well below the 10% CAP rate seen during the 1990s. That should change, however, as interest rates rise and less money becomes available for apartment investments.

But while the short to mid-term outlook is upbeat, Meagher worries that the glut of condominium conversions could impact the region's rental market in the long term as interest rates rise and sales drop off, forcing developers to turn the properties into rental units. If that happens, apartment owners may be forced to give even greater concessions to lure tenants to vacant units.