Boston

Down 1 Place

2012 Rank: 4

2011 Rank: 3

Employment Trends
Total Nonfarm Jobs (thousands)

80 40 0 -40 -80

Absolute Change

Y-O-Y % Change

4%
Year-over-Year Change

2% 0% -2% -4%

Healthy Growth in the Biotech Industry Will Solidify Boston as a Top Rental Market

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Supply and Demand

6.0
Units (thousands) Completions Vacancy

8% 6%
Vacancy Rate

4.5 3.0 1.5 0.0

ueled by growth in the biotechnology industry, Boston will be one of the top-performing apartment markets in the nation this year. Pharmaceutical companies are rapidly expanding in the area. The redevelopment of the South Boston Waterfront, for example, is attracting Vertex Pharmaceuticals. The company announced plans to relocate their world headquarters to Fan Pier by 2013, a move that will spur economic growth and support demand for Class A apartments in surrounding areas. Additionally, thousands of construction jobs will be created, sparking demand for Class B/C rentals. Elsewhere, in the Cambridge/Watertown/Waltham and Brookline/Brighton/Newton submarkets, expansions by several biotech companies, including Novartis, Merck and Amgen will expand the renter pool for high-end units. With home prices still out of reach for many residents, apartment vacancy in these areas will compress to the sub-2-percent range this year. Overall, vacancy will dip below 4 percent this year, facilitating healthy rent growth for apartment operators. In an attempt to acquire best-in-class apartments, institutional investors will reposition their portfolios to core markets, including Boston, pushing smaller syndicates to suburban areas. REITs will dispose of assets in secondary markets to deploy capital in trophy assets located inside of state Route 128. As bidding activity remains elevated and interest rates hover near historic lows, cap rates for these properties will compress to the mid-4 percent range this year. In the suburbs, meanwhile, buyers looking for outsized returns and lower price points will target value-add properties near transportation corridors in Norfolk and Essex counties. Well-occupied assets below the $5 million threshold will trade at initial yields around 8 percent. Depending on location, owners may be able to reposition the property to attract more affluent renters and elevate rents.

4% 2% 0%

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Rent Trends
Asking Rents Year-over-Year Change Effective Rents

8% 4% 0% -4% -8%

2012 Market Outlook

2012 NAI Rank: 4, Down 1 Place. Bostons surging pharmaceutical industry helped the metro retain a top-five position in this years ranking. Employment Forecast: Boston employers will add 46,000 jobs to the metro this year, an increase of 1.9 percent. In 2011, 41,000 workers were hired. Construction Forecast: Construction activity will increase in 2012 as developers complete 1,500 market-rate units, expanding inventory by 0.8 percent. Vacancy Forecast: Vacancy will decrease 50 basis points in 2012 to a 10-year low of 3.5 percent, after improving 110 basis points last year.

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Median Price per Unit (thousands)

Sales Trends
$140 $120 $100 $80 $60

Rent Forecast: Owners will raise asking rents 4.2 percent to $1,849 per month, while effective rents will surge 5.8 percent to $1,802 per month. Investment Forecast: Investors looking for stability will target the Cambridge/Watertown/Waltham submarket. The areas low homeownership rate and steady renter pool of more than 80,000 students will continue to support long-term demand.
Construction: 860 s Vacancy: 50 bps t Effective Rents: 5.8% s

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* Estimate

** Forecast

Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Market Forecast
page 12

Employment: 1.9% s

2012 BLACK TEXT VERSION Annual Report