The demand for living in downtown Baltimore remains so strong that the city's urban core can continue to absorb thousands of new units, according to a new study released Wednesday by the Downtown Partnership of Baltimore.
The analysis conducted for the partnership by the consulting firm Zimmerman/Volk Associates found that downtown can support at least 6,700 new rental and for-sale units over the next five years.
The number may sound surprising to anyone who has been watching as old office buildings are converted into new apartments and residential towers join Baltimore's skyline, bringing thousands of new units to a city with a slow-growing population.
But the report, a five-year analysis of market rate housing demand in the downtown area and surrounding neighborhoods by the New Jersey-based real estate consulting firm, rebuts concerns often raised that a construction boom in Baltimore is over-saturating the downtown area's housing market.
"Over and over we have proved the naysayers wrong," said Kirby Fowler, president of the Downtown Partnership, a nonprofit charged with promoting the area.
By the end of this year, the downtown core and surrounding neighborhoods will have gained 5,200 rental and for-sale units since 2012. That's fewer than the 5,570 to 6,135 units an earlier study by the Downtown Partnership projected the market could absorb.
Even with all the new units, the downtown area's occupancy rate stands at 94 percent.
The report's Downtown Study Area encompasses a broader area than typically is considered Downtown Baltimore — neighborhoods within a mile radius of the city's center, from Station North, south to Locust Point.
Still, analysts and developers caution that current experience is not necessarily an indicator of future demand.
"It's everyone's question right now, as to whether all the additional supply is going to get filled by the demand," said Tony Casalena, managing director of SVN RealSite, a Baltimore real estate brokerage. "Only time will tell."
Right now, Casalena said, his firm is optimistic. As one building after another opens up, they continue to fill, he said.
The developer of 10 Light, Metropolitan Partnership, said the converted art deco office tower with 455 residences is about 96 percent leased.
The Bozzuto Group's 292-unit Anthem House in Locust Point has been leasing at least 20 apartments a month since opening in June — a faster pace than anticipated — and is currently 40 percent full.
Other recent additions to the area's apartment inventory include The 501 near the University of Maryland, Baltimore and 520 Park, an apartment building in a converted department store warehouse.
Time Group, the developer of 520 Park, is adding another 153 units on an adjacent parking lot.
And 414 Light Street, a 44-story luxury apartment tower with 394 units at Light and Conway streets, is rising rapidly with a planned finish date of August 2018.
Two factors are driving renters to the city's center, Fowler said: a steady availability of high-paying jobs and revitalization efforts that have made downtown neighborhoods more attractive.
"The more we create a strong neighborhood vibe, the easier it will be to attract more residents," Fowler said. "Seven or eight years ago there were numerous vacant buildings in the core downtown that have come back to life."
Growth in population and the number of households in the downtown area outpaces the city as a whole, contributing to demand for apartments and for-sale units, the report found.
There are about 19,140 households in the downtown area, up 9.6 percent since 2012. A majority of those households — almost 82 percent — contain one or two people.
The total population downtown has risen by 800 people to 42,785 since 2012, according to the report, which used data from the Nielsen Co. and the federal Census Bureau.
Median income among downtown residents is also higher than the city median and growing at a faster rate.
Downtown households have a median income of $53,100, up 44 percent from $36,900 in 2012. Meanwhile Baltimore's median income rose about 20 percent since 2012 to $44,800.
But with even more large buildings expected to open in the years ahead, Bozzuto President and CEO Toby Bozzuto described his outlook on the market as "cautiously optimistic."
"One has to be mindful of the amount of new supply," Bozzuto said. "You can't just continue to deliver apartments, condominiums or townhouses unless there is commensurate demand."
Bozzuto said he expects the market to slow down a bit, but he does not think that will hurt his buildings.
Anthem House, a luxury apartment building with an acre of green space on its roof and some of the highest rents in the city, is close to major highways, which means it can draw tenants who work in the suburbs or even in Washington, D.C.
Still, the influx of new rental units will force Bozzuto to think carefully before breaking ground again. Any future site will need some similar sort of strategic advantage, whether that's access to highways for commuters, proximity to top employers or a neighborhood with a strong sense of community and safety, he said.
"We remain very mindful of new supply and the effect it may have on the market," he said. "Though we believe the best projects and best locations will always do better, that is predicated on a resident being able to afford your rent, be gainfully employed and feel safe."
Stephen Gorn, chairman and CEO of Questar Properties, said he is optimistic about filling the 394 luxury apartments Questar is building at 414 Light.
The first of 414 Light's apartments will open in the spring. The glass tower overlooking the Inner Harbor is on track to be completed in the summer, he said.
More than 2,000 people have already signed up on the company's website to receive information about the apartments, which Gorn thinks is a positive sign.
"It's very encouraging that we've gotten that kind of response," Gorn said.
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Young singles and couples account for just under 70 percent of downtown households, and the partnership's report projects that they will continue to dominate the downtown housing market over the next five years.
But as city-loving millennials age, city leaders, landlords and developers will need to think about how to avoid losing them to the suburbs, possibly by revamping their amenities to be more family-focused and including larger units with multiple bedrooms, Fowler said.
At the same time, the area should focus more attention on pursuing empty nesters looking to downsize, he said.
Empty nesters and retirees account for 20 percent of downtown households, the second-largest demographic after millennials, and could buoy the market when the millennial bump subsides.
"There's a whole empty-nester bubble," Fowler said, "and we're just scratching the surface of that group."