Reopening less of a positive for Boston apartments - Capital Economics
US Commercial Property

Reopening less of a positive for Boston apartments

US Commercial Property Update
Written by Matthew Pointon
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Greater availability, lower prices and proximity to NYC have supported demand for Boston apartments during the pandemic. That implies demand may edge back as the country reopens, and some workers return to NYC. Rental growth is therefore likely to underperform compared to other cities over the next year or so. However, beyond that, growth in life sciences will continue to create well paid jobs and keep interest in living near the city high.

  • Greater availability, lower prices and proximity to NYC have supported demand for Boston apartments during the pandemic. That implies demand may edge back as the country reopens, and some workers return to NYC. Rental growth is therefore likely to underperform compared to other cities over the next year or so. However, beyond that, growth in life sciences will continue to create well paid jobs and keep interest in living near the city high.
  • It is no secret that apartment markets in large cities have fared poorly during the pandemic. Sharp falls in employment, cramped living conditions for those working from home and high rents persuaded many to leave, or delay a move to, large cities over the past year. But of the six cities we focus on, Boston stands out as something of an outlier. Despite trailing only NYC and San Francisco in employment falls in 2020, apartment vacancy rates increased 64bps over the same period, the smallest of the six. (See Chart 1.)
  • The relatively small rise in vacancy doesn’t appear to reflect developments on the supply side. There were 4,155 apartment completions in Boston last year, representing 1.7% of the stock. That compares to 1.3% in New York and 1.5% in the US.
  • One potential explanation is the type of employment lost in Boston compared to other cities. Due to the pandemic, scientific research and development has been one of the strongest performing sectors over the past year. And, thanks to Boston’s high concentration of these firms, its office-type employment has held up relatively well. (See Update.) It is a challenge for lab-based employees to work from home, which will also have prevented those well-paid workers from leaving the city.
  • Beyond that, there is some evidence that Boston has benefitted from increased demand from outside the city. According to Apartment List, Boston saw the share of online apartment searches coming from outside the metro increase from 34.2% in mid-2019 to 39.1% by mid-2020, the largest increase among the 50 largest metros. In turn, that may in part reflect the increased availability of Boston apartments compared to nearby cities. Indeed, while the rise in Boston vacancy rates has been modest, that came from a higher base, with vacancy at 5.7% in 2020 compared to 4.3% in NYC.
  • Lower costs may also have tempted some NYC residents to move to Boston. At $2,300 in 2020, the average effective rent in Boston was 32% lower than NYC. (See Chart 2.) That implies demand for Boston apartments may drop back this year as NYC and other cities reopen and workers return to the office. That will offset some of the benefits of reopening, and Boston will underperform compared to other cities. We expect rental growth in 2021 will rise in line with the 2.0% we are forecasting for the US. Beyond that, the continued importance of life-science research should keep highly paid workers living close to the city.

Chart 1: Change in Rental Vacancy Rate (2020 Q4)

Chart 2: Effective Rent ($)

Source: REIS

Source: REIS


Matthew Pointon, Senior Property Economist, matthew.pointon@capitaleconomics.com