The transformation of downtown Baltimore into a contemporary world-class city began nearly two decades ago, but over the past few years it has irrefutably evolved into a true 24/7 city and a top-tier housing market that is nationally recognized by the investment community.
An influx of commercial investment drove job growth, which inevitably boosted downtown Baltimore’s daytime population. But what is remarkable is how many of these individuals also decided to become city residents. The number of degree-holding young people living in downtown Baltimore increased by 92 percent between 2000 and 2010, exceeding the pace of 20-something magnet cities like New York and Boston. Whether it was the chicken or the egg, this new group of residents favored a rental urban lifestyle, and downtown Baltimore delivered nearly 4,700 new apartments between 2000 and 2010.
Ambitious developers John Paterakis and Michael S. Beatty paved the way in the late 1990s with the development of Harbor East, which congregates upscale retailers, Class A office space and luxury rental apartments. Its immediate success filled a niche in the market and spurred growth in other communities around the Inner Harbor, including the Ritz-Carlton. As this wave of development continued throughout the 2000s, slowly but surely, projects that were once reserved for the most prestigious waterfront parcels began to pop up all over the downtown area.
Mike Muldowney, CBRE
Today, Charm City boasts a vibrant mix of national retailers, local boutiques, top chef restaurateurs, world-class hotels like the Four Seasons, high-rise office buildings with prominent tenants like Legg Mason and luxury apartments. A downtown business base with innovative players like Under Armour, a burgeoning tech scene and a new casino are driving strong employment growth.
Along the way, Baltimore has cultivated a new reputation that seems both carefully curated and organic, blending its colorful, homegrown personality with its newfound style to strike an authenticity that resonates with today’s biggest age cohort: Millennials. Residents between the ages of 21 and 34 account for nearly 40 percent of the population in the city’s core neighborhoods, and Baltimore has been recognized amongst CS Monitor’s “New Cool Cities for Millennials,” Forbes’ “Best Cities For New College Grads,” and Condé Nast Traveler’s “Most Underrated Cities in the U.S.”
Millennials have structurally changed the face of the multifamily market across the nation. Their tastes have commanded new standards in building construction, apartment design and cutting-edge features. Their back-to-cities movement underscores the importance of an amenity-rich location above and beyond any tangible building amenities. Their attitudes about homeownership, particularly in the wake of the recession, generated an unprecedented amount of rental demand and the perfect storm for multifamily developers, driving a boom in apartment construction nationwide.
Despite conversations about oversupply and the delivery of over 2,200 apartments in downtown Baltimore over the past three years, occupancy rates hover in the mid-90 percent range and absorption remains strong. Adaptive re-use projects and office conversions are proving popular with residents who aren’t willing to pay the rental premiums associated with waterfront communities, driving the development of numerous properties throughout the central business district.
The 2013 delivery and 2015 sale of The Bozzuto Group’s Union Wharf represented milestones for Baltimore. Despite having the highest rents in the market, the Fells Point community leased up rapidly and without any concessions, silencing any questions about the depth of the city’s discerning renter pool. The sales price — $121.5 million according to The Baltimore Sun — surpassed the per-unit record in Baltimore and topped the next closest sale by nearly $200,000. A competitive bidding environment included several major institutional players, demonstrating that more plentiful and diverse capital has arrived in Charm City. Fittingly, the return on investment for Class A apartment complexes in Baltimore is higher than it is in both Washington, D.C., and Philadelphia.
The commitment of local business leaders and developers indicates a bright future for downtown Baltimore and its multifamily market. Under Armour’s Kevin Plank recently announced plans to add thousands of employees over the next few years, the majority of whom will be Millennials. Beatty’s anticipated Harbor Point project will add 3 million square feet of office, retail, hotel and residential space, most of which is expected to deliver within the next three years. There are over 5,800 apartments in total under construction now and in the 36-month pipeline, but in Baltimore, it seems that the more they build, the more they come.
— By Mike Muldowney, Executive Vice President, CBRE. This article originally appeared in the July 2015 issue of Southeast Real Estate Business.