CoStar Market Insights: Multifamily Deliveries in Providence to Peak in '18
CoStar Market Insights: Multifamily Deliveries in Providence to Peak in ’18
2018 Expected to be Banner Year for Multifamily Development, Though Slow Economy, Population Growth Could Hinder Progress
This high point has been years in the making, as light inventory growth from 2011-2015 allowed vacancies to plunge and landlords to bump rents at increasingly aggressive rates. The market took a turn in 2016 and 2017 with roughly 1,400 units delivered over those two years, a large amount of units by Providence’s historical average.
Developers are now playing the waiting game, hoping there is enough built-in demand to handle so much new supply in such a short period. Vacancies are still near historic lows, but could creep up depending on how well new inventory leases.
One of the main risks for new inventory is Providence’s slow but consistently growing economy. While Providence did not fall as hard as many metros did during the recession, its economic recovery was much slower than the national average.
Job growth has trailed below the national average, largely due to a high concentration of education and health services jobs, and net population growth has been essentially negligible the past 10 years. Such a slow economic recovery from the Great Recession may explain why developers were reluctant to build here early in the cycle.
While its economy may not be a flawless one for multifamily development, Providence has begun to see an increase in construction, perhaps as a result of tightening fundamentals.
Likely attracting further construction are development groups priced out of Boston. Given the proximity between the two cities, many developers can easily build projects in both markets. Although Boston has better demand drivers than Providence, both in job and population growth, land and development are more expensive and a massive wave of deliveries are arriving to market, creating an intense competition for tenants. Over 10,000 units are predicted to deliver in Boston in 2018, representing a full inventory growth of more than 5% versus 2.5% for Providence.
Leading the development charge are neighborhoods to the north and east of downtown Providence, including the Downcity/Eastside and Northeastern Providence County submarkets. More than 1,000 units are either under construction or recently delivered in the two submarkets, representing an inventory growth of nearly 10%. Many projects here are in dense walkable parts of the city with access to public transit.
A prime example is the 201-unit Edge College Hill currently under construction at 169 Canal St. Located steps from the commuter rail station, the community aims to attract off-campus student renters, a major multifamily demand driver for the area.
Other developers have turned to the city’s abundance of old industrial buildings for loft apartment projects. Projects like U.S. Rubber Lofts and American Tourister’s conversion have utilized local and federal tax incentives to convert aging but historic mills into attractive places for millennials to reside.
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