Boston’s multifamily market continues to face rising vacancy rates in early 2024, as below-average demand lags behind new deliveries, impacting rent growth. However, the supply side is quickly stabilizing, hinting at a potential balance in the near future. Quarterly absorption has averaged around 1,500 units over the past year, representing just over 2% of inventory—less than half of what was seen at the end of 2021.

Urbanized submarkets like Somerville/Charlestown and East Boston/Chelsea, along with suburban areas south of the city, have shown strong absorption. In contrast, Downtown Boston, Back Bay/South End, and northern suburbs have experienced weaker demand. Overall, demand has not been sufficient to keep up with the new units, leading to a supply growth that exceeded absorption by more than 2,000 units in 2023.

The current vacancy rate of 5.4% is expected to peak soon before trending back toward historical levels. Compared to national trends, Boston’s vacancy rate remains relatively low, traditionally hovering around 100 basis points below the national average. However, the gap has now widened to over 200 basis points.

Higher vacancy rates have slowed year-over-year rent growth from nearly double digits in early 2022 to 2.9%. Despite this slowdown, Boston’s rent growth still surpasses the national average of 1.0%, contributing to resilient investment sales. In 2023, sales exceeded $3.4 billion, remaining above the 10-year average, although below the peaks of 2021 and 2022.

Interest rates have led to rising cap rates and a 14% dip in values, aligning with national trends. Nevertheless, Boston has maintained liquidity, with several major property sales in mid-2023. As cap rates may continue to rise, Boston remains an attractive market for multifamily investors.

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