After a modest 2013, due to government budget cuts and furloughs, the Baltimore apartment market is making a comeback this year. According to a report from Marcus & Millichap, the accelerating job growth and the strongest household formation in years will help boost net absorption of apartments across the metropolitan area in 2014.
Baltimore’s growing 20- to 34-year-old population is considered the prime renter demographic and is also one of the important factors expected to further support demand. The number of residents in this age range has increased over the past five years, growing at double the pace of the national average. The city’s proximity to Washington, D.C., with its well-paid government and corporate jobs, will also help demand outpace construction. By the end of the year, Marcus & Millichap predicts that vacancy will drop 30 basis points, to 4.5 percent. This will also lead to higher rents. In 2014, effective rents are expected to rise 3.1 percent, to $1,229 per month.
Anticipating the growing demand, developers have already stepped in and started work on several large apartment projects. According to Marcus & Millichap, 1,800 new units will be delivered this year, increasing the inventory by 0.9 percent. This number represents a drop from the 3,400 units completed last year.
More than half of the completions slated for 2014, about 1,000 units, will be delivered in the Downtown Baltimore area. And hundreds more will come in the following years. While some projects call for the renovation and conversion of historic buildings such as the Equitable Building or the Raffel Building, others are really impressive. Virginia Beach-based Armada Hoffler Properties will construct a 20-story mixed-use tower, with 103 apartments in the city’s Inner Harbor. Zom Holding Inc. plans to demolish the former University of Maryland Specialty Hospital and replace it with a new 350-unit apartment building. And Questar Properties plans to build a 40- to 45-story luxury apartment tower, with 350 units, on the site of the former McCormick & Co. spice factory.
Baltimore’s central business district is also attractive to investors. Last year, it accounted for nearly 40 percent of the transactions in the entire metro area. According to Marcus & Millichap, the areas to the east will also draw new investors, but listings will remain tight, as many owners will look to take advantage of this year’s slowly rising property values. Due to a lack of available high quality assets, class B/C properties will continue to comprise the majority of the transactions in 2014.