Recent data has shown that economic activity in Prince George’s County (PG County) is on the rise. PG County is Maryland’s second largest county and home to over 900,000 residents. Between the third quarters of 2016 and 2017, the county saw the creation of 6,175 new jobs. As economic development increases, Prince George’s County proves to be a profitable landscape for multifamily real estate investors.
Rental rates have steadily risen since the beginning of 2015, beginning at an average of approximately $1,360 per unit and ending last quarter at approximately $1,480 per unit. This equates to a compound annual growth rate of approximately 2.64%.
Given recent economic developments in PG County, we remain bullish on its future for multifamily investment. Many of PG County’s new real estate developments include multifamily, and we believe that the new product will be absorbed as Prince George’s County becomes a more attractive place to work and live. In particular, Prince George’s County is a popular alternative to Washington D.C. CNN data shows that the Maryland suburbs of D.C. are around 10% more affordable than living inside the city limits and even more affordable as you approach Baltimore.
PG County Comparison to District of Columbia
Long-term investors should not overlook the D.C. suburbs as a venue for obtaining steady cash flow. The below graph shows the spread in unit prices between the D.C. Metro area and the surrounding Maryland suburbs:
As previously mentioned, occupancy rates in PG County leveled off in the first quarter of 2018, ending March 2018 at approximately 95%. This is following a two-year period of general decline from their peak in 2016 at 96%.
Further evidence supports the relative affordability of PG County compared to the District of Columbia, as shown in the graph below. The graph below shows the average price per unit indicated by sales over the past five quarters, Q1 2017 through Q1 2018. At the end of Q1 2018, the average multifamily unit in Prince George’s County sold for $185,739 compared to the average unit within the District of Columbia, which sold for $432,731. It is important to note that the D.C. average price per unit was skewed by a particularly high value sale in March 2018, which reached a price per unit of $624,342.
Prince George’s county spans nearly 500 square miles, part of which is located in the Baltimore-Washington corridor. Directly adjacent to Washington, D.C., Prince George’s County is a mere 35 miles southwest of Baltimore, MD and is proximate to other major economic and cultural centers, such as Annapolis, MD, and Alexandria, VA. Prince George’s County is home to 27 municipalities, including College Park, home of University of Maryland, and Bowie, home of Bowie State University.
Many federal agencies have enjoyed the relative affordability of Prince George’s County compared to the District of Columbia, as nearly half Prince George County’s top employers are federal government agencies, including the IRS and Census Bureau. The latter is headquartered in Suitland, MD, which has recently been spotlighted with the development of the Town Square at Suitland Federal Center. This 1-million-square-foot, mixed-use development includes close to 900 apartments and single family homes, 100,000 square feet of retail space and a 50,000-square-foot performing arts center. The estimated economic impact of this new development includes $400 million in construction costs and 1,200 construction jobs. The project will take place over the next two to three years.
Further evidence supporting a bright future for Prince George’s County was recently noted in The Washington Post’s article entitled “Housing markets in Prince George’s and Montgomery are heating up.” The author writes:
“‘Both Montgomery and Prince George’s counties had median sales price increases around 5 percent in February 2018 compared to February 2017,’ says Andrew Strauch, vice president of Bright MLS in Rockville, Md. ‘That’s a healthy price increase for both counties, and it means that Prince George’s County has caught up and finally recovered from the housing crisis.’”
In part, rising home prices are due to the 15 Metrorail stations within Prince George’s County, which provide convenient transportation throughout the county and into Washington, D.C. Moreover, a new, highly-anticipated Purple Line will further improve public transportation in Prince George’s County by connecting Bethesda to New Carrollton with stops in Silver Spring, College Park, and additional destinations.
Rising home prices, new real estate development, and job creation have coincided with a steady rise in rental rates over the past three years. The long-term nature of Prince George’s County’s economic initiatives will likely help to support its multifamily sector in the coming years. While new supply may prevent occupancy rates from rising in the near-term, the relative affordability of PG County will likely encourage continued absorption, providing a strong rental base for multifamily owners.
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Stephen Beauchamp | SVN REALSITE Analyst
Sources: Census.gov, Prince Georges County MD, Yardi, Real Capital Analytics.