Baltimore’s Multifamily Market is Growing at an Unprecedented Rate
For years, others have considered Baltimore a second-tier market on the Interstate 95 Corridor, lacking the excitement that cities like Philadelphia and Washington, D.C., offer. Not so any more. Baltimore has evolved into a top-tier housing market that is nationally recognized by the investment community.
No longer a collection of relics from the “rust belt” banking town that it was decades ago, Baltimore is now a mosaic of adaptive reuses and a hot-bed for tech jobs. The Charm City is an incubator for creativity and entrepreneurship that sprouts from the world-renowned medical and educational institutions such as Johns Hop-kins and the University of Maryland Baltimore. As a result, net absorption for new multifamily units in 2017 surpassed city records and continues to grow at unprecedented rates.
There are many factors that contribute to strong levels of demand in a market, such as job growth, affordability and developers creating attractive space targeting all demographics.
Baltimore’s evolving job market continues its rapid expansion, driven primarily by “eds and meds.” The sector experienced 19 percent growth over the 10-year average and expand-ed 2.5 percent in 2017. Residents speciﬁcally target areas where they can live, work and play, and with an expanding job market, more employers continue to relocate to attract top talent in the city.
Outside of Baltimore’s traditional employers, the city has seen tremendous growth in tech employment. Baltimore was recently ranked No. 11 in CBRE’s annual “Scoring Tech Talent” report. Tech occupations rapidly expanded 12 percent over the past ﬁve years. The average wage for tech jobs in Baltimore is $98,824, and only continues to grow as national ﬁrms recognize Baltimore as an East Coast tech hub.
Affordability is also a major factor in the growth for multifamily demand. For many, Baltimore is considered the most affordable option on the I-95 Corridor. With Class A rents at $1,760 per month, downtown Baltimore is primed to compete with comparable markets, at a lower price. Washing-ton, D.C.’s Class A rents are 31 percent more expensive at $2,541 per month, and downtown Philadelphia’s Class A rents are at $2,251, 22 percent higher than Baltimore.
Despite the disparity in rents, Baltimore’s average household income ranks in the top 15 metros nationally, with residents earning $91,706 annually. The average renter in Baltimore spends 23 percent of his or her income on rent, less than other metros such as Boston (31 percent), New York (45.2 percent) and Philadelphia (29 percent).
As a result, developers have responded by creating more opportunities for both millennials and empty nesters to live close to where they work. This has culminated in 3,720 new units over the past three years, with 1,728 more units expected to de-liver this year.
Despite new supply, absorption is the strongest it has ever been. Bozzuto’s Anthem House project in Locust Point reached stabilization in less than a year, averaging 22 units absorbed per month since it delivered. PMC Property Group’s 300 St. Paul, an adaptive reuse of the former OneMain Financial Headquarters, has averaged 35 units absorbed per month since it delivered in December.
Regarding development, 10 projects are currently under construction in the city, with Questar’s project on the Inner Harbor, 414 Light, as the largest. Anyone driving through or past Baltimore can’t miss the 44-story high-rise project, adding 394 luxury units to the market, and bridging downtown Baltimore to Federal Hill via Light Street. The $170 million project offers unrivaled views of the harbor, and has generated signiﬁcant interest from renters. More than 2,300 interested potential tenants have signed up on the development’s website so far.
Baltimore’s job and rent growth have created a competitive bidding environment among several major institutional players, demonstrating the increasing diverse capital entering the Charm City. In 2017, 67 properties in the Baltimore metro area traded for $2.8 billion, a 26 percent increase in sales volume from 2016. This growth ranked Baltimore eighth in the U.S. when comparing top metros for year-over-year investment growth, placing the city in the spotlight as an emerging market for strong investment opportunities.
The top buyer in 2017 for the met-ro area was Morgan Properties, an apartment management and investment ﬁrm based in King of Prussia, Pennsylvania. The ﬁrm acquired 5,327 units in the area in 2017 for an aggregate value of $659.2 million. In. 2018, the company has continued to buy into the market with its most recent purchase, Orchard Meadows, a 240-unit project in nearby Ellicott City, for $50.5 million.
Whether it be Sagamore’s $5.5 billion redevelopment of Port Covington or Elon Musk’s plans to connect Baltimore to New York and D.C. via high-speed rail, there is no doubt that exciting initiatives are taking place in and around the city, and millennials, investors and businesses alike are taking note.
— By Mike Muldowney, Executive Vice President, and Dan Kaczowka, Research Coordinator, CBRE. This article originally appeared in the July 2018 issue of Southeast Real Estate Business.