The Baltimore Metro’s multifamily market will likely exhibit signs of easing off as the pace of new supply somewhat outstrips demand. This is contributed to a large quantity of new units coming online due to historic conversions and new construction.
The surge in new units in the Downtown and Inner Harbor submarket has slightly driven down rental rates while rent concessions are beginning to rise. With below average demographic trends, only a modest amount of new rental supply is expected to be needed, particularly in the city center. The latest data points to Baltimore heading towards a maturing cycle for multifamily.
Approximately 9,400 multifamily rental units have been added since 2012, almost half of which are located in the city. The total Baltimore inventory is 247,379 units. Urban renewal projects in Locust Point, Harbor East, and Fells Point have attracted a well-educated population, which, in turn, has attracted employers such as Under Armour and Excelon. However, the moderate amount of new supply projected underway will be much more broadly distributed.
The Downtown Partnership of Baltimore reports that 1,460 units were under construction in 2016, and an additional 3,096 are planned through 2019. Despite an overall stabilization of the market, there’s no signs indicating any slowdown in conversions and new construction.
While there is still some new development planned and underway in strong locations, like Columbia and Towson, there is little new multifamily activity in surrounding suburban locations. Properties close to public transit or near some of the top employers will continue to have the strongest absorption potential.
Baltimore has a substantial population of approximately 2.8 million people and a relatively well-educated workforce. Currently, 37% of its population has earned a bachelor’s degree compared to 30% nationally, allowing Baltimore to attract well-paying, knowledge-based industries.
Median per capita income is $54,000, approximately 18% higher than the national average, giving local consumers more spending power. Moody’s Analytics is projecting that up to 45,000 new jobs could be added in the metro through the end of 2018.
The market fundamentals is expected to remain steady, with vacancies in the 5% range. Rent growth is expected to be in the 2% range. Asking rents per unit for Urban Class A ($1,800), Suburban Class A ($1,675), Urban Class B ($971), and Suburban Class B ($1,154) are trending lower.
With an anticipated rise in interest rates, multifamily property values could show steady to slight decline after a strong market over the past several years. A decrease of .1 - 1.9% in value for urban Class A and practically no decrease for Class B values is forecasted over the next 12 months. This should not slow down the appetite for apartment buildings as regional and national investors get priced out of Washington, D.C., Philadelphia and NYC.
Baltimore will continue to benefit from its strongest employment sectors including education, healthcare, defense and cybersecurity. Longer-term, the steady growth of jobs in these sectors should help fill new rental supply.
Sources: Baltimore Development Corporation, Downtown Partnership of Baltimore, Axiometrics, Fannie Mae, Costar, IRR, Moody’s Analytics, SVN REALSITE, Reis, Real Capital Analytics