Baltimore Multifamily Shines During the Pandemic

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Baltimore Multifamily Shines During the Pandemic


I've been seeing some folks interested in Baltimore's multifamily market, and I wanted to shed some light on this market during this time. Backed by a historically strong Mid-Atlantic multifamily market with a diverse unemployment base of Feds (Federal Government), Eds (Education) and Meds (Health Services), Baltimore continues to show its resiliency during recessions as compared to other markets around the country.

Despite tumultuous times of the COVID-19 pandemic and the country sustaining heavy job losses, the Baltimore market fared well compared to other metros. According to the Bureau of Labor Statistics, Baltimore ranked 8th in the nation for the lowest unemployment rate at 8.0% ending June 2020, compared to 11.2% nationally.

In the historical context, Baltimore has proven to be a recession-resistant market. Coming out the Great Recession, CBRE ranked Baltimore as the #1 market with the least impacted rent growth in the nation and it recovered in just six quarters, compared to a national average of 12 quarters. We expect Baltimore to continue its historical track record during this current recessionary environment.

Rent Growth

Asking rents continue to grow in Baltimore, and effective rents in the metro experienced a quarterly increase of 1% ending Q3 2020. Data from CoStar/Apartments.com shows that there was a temporary 30 to 45 day decrease in asking rents when the pandemic first hit which soon reversed in May 2020. Ending September 2020, Yardi Matrix noted that Baltimore's rent growth was 1.3% YoY - which is better than some markets like San Francisco, Boston and Dallas and Washington, DC. 

However, asking rents are not increasing in all parts of Baltimore. Submarkets that are development-heavy with a lot of Class A inventory available or in the pipeline are experiencing the most declines in asking rents throughout the metro. These markets are primarily in downtown Baltimore and nearby surrounding areas. This downward trend can be attributed to “Urban flight” as we are beginning to see a population shift from dense inner cities to less crowded suburbs due the impact of COVID-19. According to Yardi Matrix, over 3,200 units are set to be completed by year-end, which can mark a significant increase in both inventory and vacancies in these markets.

Submarkets such as Northeast and West Baltimore registered gains in asking rents of over 2% through the end of Q3, due to their historical affordability for renters by necessity. Affordable areas in Baltimore rarely experience any threat to increased supply as new developments are virtually non-existent in these markets. That keeps vacancies tight and demand high. This truly shows how resilient the Baltimore rental market is given the current economic downturn.

Occupancy

Baltimore’s occupancy rate held steadily at 94% ending September 2020 according to ALN Data. Occupancy in affordable properties were 95.1%, while effective rents in the metro represented a quarterly increase of 1%. As a whole, concessions increased due to the onset of the pandemic, given the tactical approach that many owners took to either retain their tenant base or solicit new tenants. Since then ALN reports that concessions began to decrease toward the end of Q3. Only 4.8% of affordable properties were offering concessions, compared to 14.1% in market-rate properties. This only adds to the strength and resilience of workforce housing in Baltimore.

Economy

Baltimore lost almost 240,000 jobs in the 12 months ending in May according to Yardi Matrix. The unemployment rate rose from 3.5% in March to high of over 10% in April. According to the BLS, the unemployment rate ending July 2020 was 7.7% with a preliminary rate of 6.6% for August 2020, compared to 10.2% and 8.4% nationally.

Conclusion

Baltimore is on pace to rebound well from the pandemic given its location in the recession-resistant Mid-Atlantic market. With a diverse employment base, decreasing unemployment rates and stable rents, these metrics foreshadow a strong future. This data also shows that during a downturn, Baltimore is among the top performing markets in the country for multifamily. Just know the market and invest smartly! 



Sources: CoStar, ALN Data, BLS, CBRE, Yardi Matrix

Originally posted by @Joe Norman :

Excellent analysis, thank you Yannik! Do you have a PDF version that you'd allow me to share with my clients (properly attributed to you, of course)?

Hey Joe! Thanks a lot. I don't have one. But feel free to share with your clients!

 

Originally posted by @Seth Hochberg :

This is super insightful! Thanks for sharing this. This evidence seems to be one of several indicators that Northeast Baltimore is a strong market to invest in. 

Almost all of our properties are in this market. They demand is high for this workforce housing area, and vacancies generally get swept off the market within 30 days - in our experience. And....it's a "safe" area to invest in. My motto is if I wouldn't feel comfortable picking a check up at midnight in an area, then I don't invest in it. 

 

Interesting analysis. It seems like you’re saying the working class spots are the place to invest in, not the trendy “up and coming” neighborhoods one often hears referenced.

Great article! I'm surprised the drop in Federal Hill rent has been so steep as there as so many young families and young professionals living in the area, but it would appear the "urban flight" is in full effect. In terms of areas to invest in, the collecting rent at midnight policy seems great, my only apprehension in Baltimore is that areas change extremely fast from B-C-D class neighborhoods especially in the East and West ends of the city so knowing the neighborhood is key. Very much enjoyed the read and I will bookmark this for future reference!

Originally posted by @Leo Watts :

Interesting analysis. It seems like you’re saying the working class spots are the place to invest in, not the trendy “up and coming” neighborhoods one often hears referenced.

In my opinion - yes! These areas have the most renters by necessity with little to no development in the pipeline - keeping a tight strain on supply. My motto is "heads in beds." Vacancies can hinder returns. You can make money in some of those "up and coming areas" as well though. 

 

Originally posted by @Jhosdyn Barragan :

Great article! I'm surprised the drop in Federal Hill rent has been so steep as there as so many young families and young professionals living in the area, but it would appear the "urban flight" is in full effect. In terms of areas to invest in, the collecting rent at midnight policy seems great, my only apprehension in Baltimore is that areas change extremely fast from B-C-D class neighborhoods especially in the East and West ends of the city so knowing the neighborhood is key. Very much enjoyed the read and I will bookmark this for future reference!

Thanks! I think the areas are reversed. I can't really think of an area that went from a B to a D. I'd love to know though so I can keep an eye open. I'm seeing some areas change with all the development in the city by Johns Hopkins or Project Core. I think Baltimore is on the cusp of revitalization. Probably not to a level like DC but something is coming.

 

Originally posted by @Robert Jackson :

Great information. I have a rental property on the Northeast side of town. Had a few hiccups in the beginning, but finding a tenant was not an issue.

Thanks! It's like that sometimes. Tenants lie and things fall through. But if you have a good product on the market, the leads will come. 

Excellent post. Is all of this data based off SFR? I would love to hear your thoughts on duplex/triplex rentals as I have found that buying these small multifamily properties can get the most rent out of the amount of space available. Thanks!

I'm sorry I realize that may have been easily misinterpreted. From my experience living in the city from '13-'17, I noticed often that you could have very different classes of neighborhoods seemingly on top of each other. For instance, downtown you have some very nice apartment buildings right down the street from what used to be some very shady areas a just two blocks north in the direction of Lexington Market. Baltimore as a whole has been undergoing some great improvements and that trend seems to be continuing from your article. 

In terms of specific areas I noted during my time there, and have kept an eye on, I really like the Pigtown neighborhood. It is situated right by the UMD Medical system and many young families or graduate students live in the area - making for great tenants. This is one area I will continue to monitor for the right deal. 

Originally posted by @Brett Costantino :

Excellent post. Is all of this data based off SFR? I would love to hear your thoughts on duplex/triplex rentals as I have found that buying these small multifamily properties can get the most rent out of the amount of space available. Thanks!

This is based on Multifamily data; however, a duplex and triplex in Baltimore can provide good cash flow opportunities as well! I own a couple and they cash flow about $700 per month for each. That's not bad....You can find some of these in the better performing markets as well and do fine. 

 

Originally posted by @Jhosdyn Barragan :

I'm sorry I realize that may have been easily misinterpreted. From my experience living in the city from '13-'17, I noticed often that you could have very different classes of neighborhoods seemingly on top of each other. For instance, downtown you have some very nice apartment buildings right down the street from what used to be some very shady areas a just two blocks north in the direction of Lexington Market. Baltimore as a whole has been undergoing some great improvements and that trend seems to be continuing from your article. 

In terms of specific areas I noted during my time there, and have kept an eye on, I really like the Pigtown neighborhood. It is situated right by the UMD Medical system and many young families or graduate students live in the area - making for great tenants. This is one area I will continue to monitor for the right deal. 

Totally agree - especially downtown. Baltimore is a very block-by-block city, and when you get into downtown, it's tough. You really have to buy on the right block. Pigtown is a good area. If you can snap up a deal I think you will do well. If you're looking for the right deal, I would suggest going direct to seller for an off-market opportunity. If it comes on the market, you'll likely be facing some competition. I hope you get it!

 

Originally posted by @Jhosdyn Barragan :

Great article! I'm surprised the drop in Federal Hill rent has been so steep as there as so many young families and young professionals living in the area, but it would appear the "urban flight" is in full effect. In terms of areas to invest in, the collecting rent at midnight policy seems great, my only apprehension in Baltimore is that areas change extremely fast from B-C-D class neighborhoods especially in the East and West ends of the city so knowing the neighborhood is key. Very much enjoyed the read and I will bookmark this for future reference!

Not sure the drop in rents in Federal Hill was "urban flight" so much as over inflated rents for what you get and competition from other areas like Canton and Butcher's Hill as investors continue to develop some really nice properties.  I would agree with you that neighborhood is the key to success in Baltimore, but change is really not as fast as you think.  Many neighborhoods that were blighted 20 years ago are still a mess (board ups, crime, infra structure, unemployment).

Great analysis @Yannik Cudjoe-Virgil