CRE Report: Baltimore’s Occupancy Rate Remains Near Historical Average

As the main economic hub of Maryland and the largest metro in one of the country’s wealthiest states, Baltimore boasts a well-educated demographic, diverse workforce, and one of the most important seaports in the nation. Since the pandemic, the metro has not only recovered all net lost jobs, but Baltimore’s multifamily market recorded its highest registered outputs in metrics such as demand, rent growth, and sales volume.

Baltimore has seen its record-setting streak of demand, rent growth, and sales activity slow down at the end of 1H 2023. However, with an overall occupancy rate of 93.3%, the market’s occupancy is near its historical average of 93.9% and still above the all-time low set in 2017.

Trendlines

Year-Over-Year Effective Rents Rebound, Near Historical Norms

Baltimore’s asking rents grew in the first half of 2023, which marked a dramatic turnaround as compared with the decrease observed in the second half of 2022. While asking rents grew by about 1.4% in 1H 2023, which was above pre-pandemic first-quarter averages, gains have slowed in the second quarter as further vacancy expansion has taken place.

The sustained continuance of those gains into the second half of the year has been on the minds of ownership groups and property managers, especially considering the number of units slated to open their doors, coupled with sluggish demand trends. Within both the Class B & C cohorts, a rise in evictions among the more affordable, workforce segment of Baltimore’s multifamily communities has weighed heavily on the metro’s headline demand figure. But within the Class A segment, demand has not dipped into negative territory and remains positive.

New Development Concentrated in Waterfront Submarkets

Baltimore’s under-construction pipeline has been on the rise but is still tame relative to historical norms. While 2022 saw deliveries (1,360 units) come in at a 10-year low, the pipeline remains active, with several projects waiting in the wings. Nonetheless, with nearly 5,000 units underway and recent demand trends remaining subdued, any impending supply-side pressure in the near term poses a risk to existing owners and property managers.

Developers have continued to target city-based, waterfront areas such as Downtown Baltimore, Canton, and Federal Hill. Those three submarkets account for nearly two-thirds of all units underway, but comprise the city’s most vibrant, renter-driven parts of the metro that are filled with a renter base of younger individuals, often with higher-than-average household incomes.

Baltimore’s Inner Harbor and Downtown Corridor are also experiencing a shift as they currently have the fourth most office to apartment and hotel to apartment conversions in the entire country.

As older office and hotel buildings are converted to apartments, paired with state agencies moving from Annapolis to Downtown Baltimore, there is an expected resurgence in Downtown apartment rents. Outside of Baltimore’s city limits, Harford and Howard Counties have been the dominant hotspots in the suburbs in recent years.

Conclusions

After posting record sales of $4.3 billion in 2021, Baltimore’s multifamily sales volume decreased to $2.5 billion in 2022. Baltimore’s multifamily investment activity has significantly decreased in 1H 2023 as rising interest rates have further widened the pricing gap between buyers and sellers, effectively slowing deal flow.

Recent activity has been heavily concentrated on smaller-sized assets and the generally larger, institutionally sized investors have been taking a hands-off approach. With hopes of increasing investment activity, the Maryland Department of Commerce expanded its existing areas eligible for the Enterprise Zone to include the Pratt Street area downtown as well as neighborhoods in South and East Baltimore and Cecil County.

The Enterprise Zone program provides property and state income tax credits to capital investments made in the region, a pivotal factor influencing public and private partnerships for new affordable housing development in the region.

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