There are a number of factors used to determine what counties in Maryland are best suited for multifamily investment. Employment is one of the key economic indicators that drive housing demand, new construction, rental growth, vacancy rates, and multifamily investment opportunities.
Using Employment Counts as an Investment Indicator
In general, the lower the unemployment rate, the more attractive the multifamily investment and development opportunities there are in any given market area. Additionally, low unemployment markets typically have lower vacancies and a stronger local economy.
Analyzing unemployment rate is typically a good investment indicator but ‘employment counts’ by county (extracted from census data) will reveal additional insight into multifamily investment decisions. Employment count gives a strong visualization of the entirety of a workforce in any specific area. This data will also provide supporting analysis for current and future multifamily housing demand.
For example, County X may have an unemployment rate of 5%. Meanwhile, County Z located an hour away also has an unemployment rate of 5%. However, employment counts for County X has 300,000 employed at the start of the year, while County Z has an employment count of 100,000. County X will prove to be a superior multifamily investment because it has a workforce three times the size of County Z, regardless of the equal unemployment rate.
Maryland Investment Counties (Ranked by Employment Strength)
This report extracts census data to analyze the 24 counties in Maryland based on employment counts. We rank each county’s multifamily investment opportunity by employment count strength. Between 2015-2017 there was no significant employment count growth or loss by county. Therefore, we don’t expect a wide fluctuation in employment count numbers for the upcoming year. Our 2018 projections were derived by averaging 2015-2017 employment count numbers for each county. While we expect to see a slight increase in employment count for most counties going into 2018, it won’t be enough to change the composite rankings.
Each Maryland county is ranked below based on their 2018 employment strength outlook:
The rankings show Montgomery County is projected to have the strongest employment strength for 2018 of all 24 Counties. Montgomery County is conservatively projected to have an employment count of 430,729 for 2018, which will make up about 17.6% of all employment within Maryland.
We project the combined top five counties of Montgomery, Baltimore County, Baltimore City, Prince George’s, and Anne Arundel to have a net employment count of 1,686,145 at the conclusion of 2018 (as illustrated below):
The analysis reveals that the top five counties will account for about 68.8% of all employment within Maryland. The other 19 counties combined are projected have a net employment count of about 764,397 at the end of 2018, accounting for only 31.2% of net employment within the state.
The chart below illustrates the overwhelming percentage of total Maryland employment that the top five areas will possess at the conclusion of 2018 in comparison to the other 19 counties combined:
Top 5 Maryland Employers Drive Employment Strength
Referencing a 2017 Baltimore Sun report of the top employers in Maryland, we found that the top five employers are each headquartered in one of the top five investment counties, with the exception of one employer (see below):
The top Maryland employers are located in Prince George’s County, Baltimore City, Baltimore County, and Anne Arundel County. The only outlier employer is MedStar Health located in Howard County; which is the 6th employment strength county. The location of the largest employers further supports the top employment strength counties as the premier multifamily investment areas within Maryland.
Employment and Vacancy Rate as an Investment Indicator
As net employment count increases, income growth also increases. This leads to lower vacancy rates and higher rental incomes. The stronger the labor force in an area (specifically income growth), the better the investment opportunity for multifamily.
If we look at vacancy rates for a given area, they tend to be inversely correlated to employment strength numbers. When vacancy rates are low, rental income increases. Also, in low vacancy markets, the demand for rental housing typically exceeds the supply of available units and renters lose their bargaining power. We see this happening in many areas of Montgomery County and high demand cities like Washington DC and NYC. Historically, anything below a 5% vacancy rate marks an inflection point in the balance of rent negotiation leverage between landlords and renters.
Montgomery County in 2016 had a 3.1% vacancy rate. One-third of all housing in Montgomery County consist of rental units and affordability is becoming a chief concern. New multifamily construction, developer incentives for affordable housing, and adaptive reuse of existing structures are all viable areas of opportunity.
Baltimore County and Baltimore City’s combined average vacancy rate is 6.6%. There’s a large supply of new apartment units coming online in Baltimore City, causing rent growth to flatten even fall in certain areas. Baltimore’s surrounding counties are not showing as much new building activity as compared to Baltimore City. This points to excellent investment potential in the Maryland surrounding counties. For example, Baltimore County has the advantage, as it surrounds Baltimore City. A large and accelerating percentage of the Baltimore City workforce live in Baltimore County.
Other Investment Considerations
Additional factors to consider when making multifamily investment decisions include historical rent growth, cap rate, development pipeline, government incentives and yield the market is delivering. Understanding reasons why people would want to live in particular areas, i.e., schools, crime and public transportation should also be evaluated.
Choosing to buy a multifamily investment property typically involves a detailed analysis. By analyzing employment count based on census data, investors can make better-informed decisions regarding multifamily investment comparisons by county. The investor should also keep a lookout for any emerging growth industries that might shift the employment rate to increase or decrease job creation.
SVN REALSITE believes the top five areas of Montgomery, Baltimore County, Baltimore City, Prince George’s, and Anne Arundel will continue to yield premium multifamily investment and development opportunities throughout 2018.