2023 Boston Review and Outlook

The Batterymarch Insider

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2022 Boston Market Review

The 2022 downtown Boston real estate market played out pretty much as we projected a year ago (see last year’s outlook). For the year, the Batterymarch Back Bay IndexÓ was up 6.2% on a unit volume decline of 16%. Most of the 2022 price performance was front end loaded, before the Federal Reserve got into the act. Factoring in transaction costs, the price performance was effectively flat year-over-year.

The real 2022 story relates to the decline in volume – a barometer for liquidity and overall market health. The year-over-year decline of 16% is eye opening, but comparing to the pre-pandemic five year average, 2022 volumes declined a whopping 24%. Prices are holding up, but the market underpinnings remain very weak.

2023 Boston Market Outlook

Rates Stay Elevated and a Recession?

We expect that the macro backdrop will remain challenging throughout 2023. The Federal Reserve rate increases have clearly tamped down inflation, but it remains to be seen just how quickly inflation will fall back into the Fed’s comfort zone. Additionally, the market will remain on edge over the prospects of a full-blown recession later this year.

Mortgage rates, which peaked last year at 7.3%, are now hovering at about 6.4%. While the move lower is encouraging, we remain cautious as the market meaningfully cooled off last year when rates went through 5%. It remains to be seen where mortgage rates settle, but we suspect that artificially low mortgage rates are a thing of the past.

We Remain Cautious on New Construction

Readers of our work know that we’ve been concerned about the wave of new construction inventory currently flooding the market. If the market action at 1 Dalton, the new Four Seasons, aka the Prince of Darkness, is any indication of what the future holds for blinged out new developments, our concerns are very well grounded.

“The 600” Special Report

The developers at 1 Dalton started delivering units back in 2019, but the marketing effort was in full swing years before the first closings. So where do they stand after all these years? According to mid-December city tax records, it appears that out of the 174 units the developer still owns 27 (not including units that the principals own personally). Additionally, according to MLS records, there are currently 11 units offered for resale. This implies that about 22% of the units are still available for sale after all these years.

Maybe the weakness at 1 Dalton relates to what we see as a less than ideal location – it didn’t escape our notice that when the Prince and Princess of Wales recently visited Boston, they opted for the original Four Seasons on Boylston Street. It also should be recognized that for most of 1 Dalton’s five year marketing window, this was the only new ultra high-end game in town – the competitive landscape is very different today.

Taxes – Is Mayor Wu Killing the Golden Goose?

With a new governor in office, we expect that the City of Boston’s home rule petition for a 2% transfer tax on real estate transactions above $2.0 million will become reality. When you consider that the average price for a Back Bay two-bedroom condominium is just shy of $2.0 million, this new tax will definitely have an impact on the luxury market.

While the city is still somewhat flush with Covid relief cash (you can only build so many bike lanes in a year), we remain concerned about what we see as a lack of fiscal discipline with our elected officials. This is particularly concerning when you consider that we’re staring at what may be a meaningful fundamental decline in our commercial tax base. 

We can add to our list of concerns that Mayor Wu recently announced a revamp of the real estate development process. While these new ground rules are still being assessed, one thing is clear – building in Boston is going to be substantially more expensive going forward. Real estate development has been the city’s financial engine of growth for generations – is the current administration killing the golden goose?

Unreported Petty Crime

Public officials are quick to throw out crime statistics showing Boston is a safe city relative to other major cities. We have no reason to doubt the data and we consider Boston to be a safe place to live. What concerns us is the omnipresent petty crime that largely goes unreported.

I recently witnessed a young man at our local CVS walking around the store stuffing his pockets full of merchandise. Being curious, I followed him around the store. He seemed to have a list of items that he was after. After swinging through the snack aisle, where he picked up a few last-minute goodies, he just casually walked out of the store without paying.

The incident chewed at me, so I called the store manager later that day and told him what I witnessed. The manager explained that this happens all the time and the store is helpless to do anything about it. They do occasionally file police reports, he told me, adding that they are a waste of time.

Stores like CVS will pass the cost of “shrinkage” on to the paying customers. If paying customers get fed up with paying inflated prices for things like toothpaste, or if upper-level management decides the risk of operating in urban areas is too high – these stores will close. Additional loss of our retail base is very bad for the urban quality of life on multiple levels.

Unreported petty crime, gangs on dirt bikes doing wheelies through traffic, even food delivery services choking our city streets by double and triple parking are detracting from the quality of life in our city. City officials need to wake up to what’s happening on our streets and act before we go down the path of cities like Portland or Chicago.

Financial District – A Train Wreck?

PLAN: Downtown

Mayor Wu recently re-launched the city’s plan to “revitalize and reimagine” the Financial District. The plan is long on progressive ideas, but short on details. A major theme of the plan is the city’s desire to create more housing units in the Financial District, specifically by converting class B and C office space into residential housing.

Setting aside the fact that converting antiquated office buildings into residential housing is borderline non-feasible, we remain concerned about continued work from home trends and companies pulling back on their commitments to their Financial District offices. If the downtown office disappears, wouldn’t the demand for downtown housing go the same route?

Last year, Eaton Vance, Loomis Sayles, and Cambridge Associates announced that they were shrinking their Financial District footprints. These aren’t the only firms slimming down their Financial District presence; we see it as a secular shift.

Source: AIA New York

Alarm bells should be sounding at City Hall. In the digital era, an office is no longer a place, it’s a capability. Companies no longer need to be a few blocks away from their clients. A declining commercial tax base could have catastrophic consequences for the city’s long term financial health. As we see it, the Wu administration should be bending over backwards to incentivize large employers to keep head count in the Financial District.

Converting Office Space to Residential = Financial Poison

The commercial tax rate in Boston currently stands at $24.68 (per thousand) and the residential rate is $10.74 (per thousand). In essence, a successful campaign to convert office buildings to residential use would be financial poison for the city. 

Maybe city planners should reach out to Millennium Partners and get a handle on how sales are going at Winthrop Center, their new 317-unit Financial District development. We suspect that those units aren’t exactly flying off the shelf.


As much as our outlook may be sobering, the sky isn’t falling. We do see pockets of good relative value. There’s always healthy demand for well located, good quality, reasonably priced properties in our market.

Clearly higher interest rates and the threat of a recession will continue to dominate market sentiment, and we shouldn’t take the overall health of our great city for granted. Our job as real estate advisers is to make sure that our clients go into transactions with their eyes wide open.

We represent buyers of luxury downtown properties and we’re the market leaders with valuation analysis. If you’re looking to buy a property, reach out to learn more about our buyer rebate programs, fairness opinions, and how we can assist you in the process.


About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent both sellers and buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.

About Andrew Haigney – A 25 year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to real estate brokerage.

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