ABSORPTION CONTINUES ITS RECORD-SETTING PACE
Annual absorption in the Baltimore metro continued to grow – absorbing 3,789 Class A units in 2018. This is an 80% increase from 2017. Fifty-one percent of apartment absorption in the metro area was in Baltimore City, while the Southern Suburbs followed absorbing 36% of the metro area total. Meanwhile, the development pipeline is down 16% metro-wide from a year ago. Rents rose by 1.8% over the year and vacancy remained unchanged. Only one project began construction in the fourth quarter.
FOURTHQUARTER 2018 HIGHLIGHTS
- Stabilized vacancy for the Baltimore metro area remained unchanged from last year at 4.8%. Vacancy in the suburbs decreased by 110 basis points to 4.9% while in Baltimore City, it increased 80 basis points to 5.3%.
- Average effective rents in the metro area are $1,707 ($1.78 per SF). Rents are up over the year by 1.8% metro-wide, surpassing the long-term average. Annapolis and Harford County were the only suburban submarkets that experienced a rent decrease over the past year. Rents increased by 2.9% in the Southern Suburbs and by 3.5% in the Northern Suburbs. Rents in Baltimore City fell for the fifth consecutive quarter, down 1.6%, with all submarkets experiencing a decline except for Federal Hill/Locust Point.
- Absorption continued to reach historic levels in the Baltimore metro area, with nearly 3,800 units absorbed over the past 12 months. The flurry of absorption activity was fueled primarily by Baltimore City, where 1,920 units were absorbed, dwarfing the prior year total of 744 units.
- The supply pipeline metro-wide is down 16% compared to the pipeline in 2017. Nearly 7,300 units are under construction or planned for delivery in the next 36 months in the metro area after attrition. The only suburban submarket that had an increase in the development pipeline from a year ago was West & NW Baltimore County. In Baltimore City, Fells Point/Inner Harbor was the only submarket to experience an increase.
•Per project lease-up pace for the 18 actively marketing projects in the Baltimore metro area currently averages 17 units per month, which compares to an average of 14 units per project per month a year ago. Projects that recently stabilized have an average lease-up pace of 13 units per month.
- Apartment building sales in 2017 included four transactions in low-rise buildings valued at $264.4 million ($239,014 per unit) and four transactions in mid- high-rise buildings valued at $261.7 million ($257,073 per unit). In 2018, eight transactions in low-rise buildings valued at $427.2 million ($229,431 per unit) and two transactions in mid- high-rise buildings valued at $102.4 million ($296,812 per unit) closed.
All 10 of the submarkets we track have less than four years of apartment supply based on absorption over the past 12 months. In addition, three submarkets will add less than 10% of existing inventory over the next 36 months. Baltimore’s supply/demand relationship indicates that vacancy rates will decrease 80 basis points to 4.0% by fourth quarter 2021; however, we expect vacancy to fluctuate during this three-year period. Rents will likely grow only slightly over the next 24 to 36 months, below the long-term average.
Delta Associates, the research affiliate of Transwestern, is a firm of experienced professionals which has been providing consulting and subscription data services to the commercial real estate industry for over 35years.
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