Suburban luxury apartments outperformed their competitors in Baltimore in every benchmark during the third quarter of 2019, but rent growth in the city was particularly underwhelming, according to a new report.
Rent for the city’s Class A apartments increased by less than 1% year over year, according to a Delta Associates report released Thursday. By comparison, rents grew by 2.6% on average in the metro area during the same period.
“According to our findings, the Federal Hill/Locust Point submarket’s negative rent growth of (negative) 4.6% is the reason for the slow rate of annual rent increases in Baltimore City. However, as the development pipeline has slowed in the city, that may indicate stronger rent growth over the next year or so,” the report said.
Despite slow rent growth, other indicators reflecting the health of Baltimore’s luxury apartment market suggest the local urban multifamily sector isn’t tapped out, though the sector is stronger in suburban areas.
Stabilized vacancy in Baltimore, a measure of leasing activity that considers a market’s historic performance, dropped by nearly 1% to 3.8% last quarter. In suburban markets, Delta Associates found the stabilized vacancy rate decreased 1.2% to 3.4%.
Leasing of new units continued at what researchers called an average pace in the metro market through October. In the last year, renters occupied nearly 2,400 Class A apartments, with the suburbs taking a slight edge, with 1,221 of those units.
Brendan Pierce, a senior associate at Delta Associates, said the lag in city numbers, particularly slow rent growth in the Federal Hill area, does not provide reason for immediate concern because other measures are “actually quite robust.”
“In upcoming quarters I think Baltimore’s going to boom,” Pierce said.
In the last decade, the city’s elected officials sought to attract younger residents in a bid to bolster Baltimore’s dwindling population.
Efforts to make Baltimore an attractive place for a better-educated, more youthful population emphasized construction of new apartments, particularly downtown and along the waterfront.
Much of that focus can be traced to the tenure of Mayor Stephanie Rawlings-Blake, who held the city’s top elected post from 2010 to 2016. In her 2012 inauguration speech, Rawlings-Blake set a goal of adding 22,000 residents to the city by 2022.
Her administration aimed to accomplish that in large part by enacting policies intended to create an urban environment that attracted younger people, who were viewed as key to reversing the population drain that has plagued Baltimore since the 1950s.
Schemes to create a city that replenished its population with a wave of young adults included the creation of tax incentives for building new apartments and the conversion of outdated office space downtown into residential properties.
Those incentives, combined with a rebounding national economy following the 2008 collapse — and underpinned by low interest rates, which made it cheap to borrow money for construction — spurred multifamily construction in Baltimore.
Builders delivered 27 apartment projects within a one-mile radius of Pratt and Light streets between 2011 and 2018, according to the Downtown Partnership of Baltimore’s most recent annual report. That organization estimates that nearly 97% of market-rate residential units in the downtown area are occupied, and its 2017 housing demand study projected the neighborhood would absorb roughly 7,000 new residential units in the next four years.
But doubts about whether units are being leased linger, in large part because there is virtually no publicly available data about how many of the units are leased. Firms like Delta Associates gather information by calling property owners or managers and by collecting the information they are willing to share.
A handful of surveys in recent years found that Baltimore’s population in and around downtown has increased and that the percentage of residents citywide with at least a bachelor’s degree has surged.
Those gains, however, have failed to move the city toward Rawlings-Blake’s goal of a population of roughly 643,000 by 2022. Despite the surge in new multifamily building, the city’s population has steadily declined.
Roughly two years before Rawlings-Blake set her population goal, the U.S. Census Bureau estimated in 2010 that the city had a population of 621,000. In July 2018, the bureau released its latest estimate, which placed Baltimore’s population at 602,000.