Mid-Atlantic Multifamily Poised for a Rebound

In the first half of 2023, the volume of multifamily sales in the Mid-Atlantic region fell to its lowest level since 2014. However, the prospects for the second half are traditionally brighter, and investors are still active, CBRE reports.

The Mid-Atlantic covers Maryland, Washington, DC and Virginia, but the report focuses on the core Baltimore and Washington, DC metro areas within the region, says CBRE research director Stephanie Jennings.

Multifamily sales in the region totaled just $1.94 billion in 1H 2023, 64% down from the prior year, and 46% below the long term H1 average since 2014. “Investors remain cautious and selective with their investments, only willing to pursue what they deem the most compelling deals,” CBRE commented.

According to a company survey, “The target unlevered internal rate of return rose to 7.25% to 7.75% in the first half of 2023, with going-in and exit cap rates nearly aligned at 5% to 5.5% and 5% to 5.75% respectively.” Rates are now moving to 5.25% to 6% as cap rates have begun to stabilize.

On the positive side, operating fundamentals in the region remain strong. The report notes that employment is the single largest driver of multifamily renter demand, and the region is no slacker in this category. It has netted 41,500 new jobs since year-end 2022, and the average unemployment rate is 2.8% — 80 bps below the national average of 3.6%. 

Indeed, total employment across the greater Washington area has grown every month since December 2022. “Office-using employment grew for the fourth consecutive month,” the report noted.

More than 34,000 units of multifamily housing were under construction as of 2Q 2023 – low in comparison to other popular U.S. markets. Most are expected to deliver by 2025 – but CBRE projects only 20% to 30% of proposed projects in the pipeline will deliver as expected.

“These conditions, paired with stabilized capital markets, are expected to result in rental rate increases and a more active sales market,” the report noted.

“The region is poised to rebound when lending conditions improve. In the interim, strategic investment opportunities still exist for motivated buyers.”