(It’s Not Just the Seaport)
As the supply demand dynamic for urban residential real estate continues to be disrupted by Covid-19, we take comfort that medical experts agree that the pandemic will eventually pass and life will start to get back to normal. While it remains to be seen if consumers will quickly re-embrace urban living in the post-pandemic world, the downtown Boston market will be grappling with a threat that may have longer lasting repercussions – the great building boom.
Before the health crisis, hardly a week went by that we didn’t read about new development projects which prompted us to question – how many units are actually in the pipeline? We reached out to the Boston Planning and Development Agency and were surprised to learn that they don’t keep tabs on the overall number of approved new housing units.
Digging through City records, we got our answer – there are over 7,600 approved new housing units in the pipeline for the Boston proper market. Most of these new developments, both condominiums and rentals, are targeted at the high-end luxury consumer.
One of the key reasons that real estate values have been so stable in Boston is the lack of new development which is, for the most part, limited by strict zoning and historic preservation regulations. But that’s changing with developers pushing into new areas and there has also been a growing acceptance of high rise residential towers. Given the high cost of land and construction, the economic viability of these projects is predicated on getting premium prices. These builders seem to be taking an “if you build it they will come” approach. We wonder how deep the demand really is for multi million dollar two bedroom apartments.
No Man’s Land – Lifestyle Over Location?
Many of these new developments sit on the outskirts of established neighborhoods, in areas that until now have been largely commercial/industrial – think of it as no man’s land. To make these areas more appealing, developers brand these new neighborhoods to create the sense that they’ve been around for years.
The old Government Center parking garage over Congress Street, which will ultimately have over 800 luxury residential units, is being rebranded as Bullfinch Crossing. If you live in Midtown or the Seaport, you may be surprised to learn that these neighborhoods don’t officially exist. Midtown is part of Downtown, and the Seaport is officially the South Boston Waterfront.
To lure the luxury home buyers into no man’s land, developers are going heavy on amenities, things like concierge service, squash courts, and pet washing stations. The sales pitch is, “it’s no longer about location, today it’s about lifestyle, lifestyle, lifestyle.”
Call us old school, but location still matters. In fact, if a great lifestyle is what you’re after, a great location should be at the top of your list. If a sales agent tells you to ignore that six lane interstate highway that’s a nine iron shot from your bedroom window because “this is about lifestyle, and location doesn’t matter any more” – run, don’t walk away. This line of thinking is akin to the famous last words of many investors, “it’s different this time.”
Not all of these developments are in the hinterlands, the cluster of projects around Copley Square seem very well positioned. We also think that the Motor Mart project in Park Plaza is very attractive as it sits at the crossroads of the Back Bay, Beacon Hill, and the South End, and it’s an easy walk to the financial district.
The competition for the luxury home buyer is going to get fierce, and we would expect that to translate into pricing pressure on even the best located properties.
For owners – have your eyes open to this trend. If you’re considering selling in the foreseeable future, the condition of your property is going to be more important than ever. Gone are the days where a seller can say that “the place was fully renovated when we bought it” (17 years ago) and expect to get premium pricing. The new development competition is all about the bling.
For buyers – be aware of the current high inventory and the pipeline overhanging the market. Don’t compromise on location, be patient, have a solid understanding of relative value, and, as difficult as it can be, avoid letting emotions get in the way. If you have immediate housing needs then consider short term leases while you conduct your search – there are plenty of deals to be had in the rental market.