BALTIMORE'S RECOVERY hasn't been as robust as its closest neighbor, Washington, D.C., but signs suggest that employment and economic growth are right around the corner.

Widespread job losses have ceased, and modest employment gains in the retail services and leisure and hospitality industries have already emerged this year. That groundswell of jobs will soon be bolstered even more, as large military relocations channel thousands of workers to the region by the third quarter of 2011, thanks to the Base Realignment and Closure Act (BRAC).

The metro area's unemployment rate was 7.9 percent at the end of the second quarter, a 70 basis point (bps) decrease from the beginning of the year, and signifi- cantly lower than the national unemployment rate of 9.6 percent. More than 6,000 new payroll jobs are forecast this year, but that's just the tip of the iceberg. Between 18,000 and 24,000 new jobs are expected to be created between 2011 and 2013, according to New York-based research firm Moody's Analytics.

The onset of BRAC alone will bring close to 25,000 jobs to the region over a five-year period, bolstering an already strong military presence. Fort Meade in Anne Arundel County and the Aberdeen Proving Ground in Hartford County are already among the region's five largest employers, with Fort Meade topping the list, employing 35,000.

A new focus on “cyber security”— combating cyber terrorism—may have an even greater effect on the local employment scene in the long term. The Defense Information Systems Agency will move to a new $380 million facility in Fort Meade next year, which will add at least 1,000 new positions to the region.

Falling and Rising

Renter demand in Baltimore has improved, particularly in the southern suburbs, as supply and demand begin to reach equilibrium.

The delivery of new supply in Baltimore has slowed down considerably this past year. The apartment pipeline decreased by nearly 27 percent, to 2,979 units, over the 12-month period ending June 2010, down from 4,072 units in the prior year period, according to Alexandria, Va.-based research firm Delta Associates.

The market has seen strong absorption since the third quarter of 2009, a trend that gathered steam through the second quarter. Data from New York-based research firm Reis shows positive absorption for the second quarter at 693 net units—and this trend is projected to gain momentum, registering more than 1,400 units next year.

Class A vacancy rates have drastically improved from the economic downturn in late 2008 and 2009. Stabilized vacancy has decreased 120 bps to 4 percent over the 12-month period ending June 2010. But not all submarkets are created equal: Overall, the southern suburbs have seen the largest vacancy declines, decreasing to 2.2 percent from 4.3 percent over the same time period, according to Delta Associates.

Rent growth has resumed throughout the metro area, with the suburbs fairing particularly well. Rents increased 3.6 percent in the southern suburbs (in Howard and Anne Arundel counties), while the northern suburbs also saw rents climb at a 2.3 percent rate over the 12-month period ending in June. Effective rents in the city were essentially flat. However, the Fells Point/Inner Harbor submarket posted an impressive 5.6 percent rent growth compared to a decline of 2.7 percent last year, according to Delta Associates.

Sales Start to Surge

Sales volume in the metro area has significantly picked up. In 2009, just five deals, comprising 1,352 units and a total sales volume of $156.1 million, were closed. But since January, 10 deals have gone down, totaling 2,926 units with a sales volume of $287.6 million. Moreover, cap rates have compressed by more than 100 bps, dropping from a market high of 7 percent to 5.9 percent based on in-place operations.

The year's most notable transaction to date was the May sale of the 634-unit Sherwood Crossing in Elkridge, Md. The property sold for $72.3 million from New York-based RREEF to Chicago-based Levin Realty Advisors and Walton Street Capital.

The continued stability of the region, combined with financing through Fannie Mae, Freddie Mac, the Federal Housing Administration, and life insurance companies, has created a significant increase in investor activity. For example, College Park, Md.-based Sawyer Realty Holding's Baltimore portfolio in the Windsor Mill area, comprised of six properties of 1,984 units, attracted tremendous interest.

The future appears bright for the city's apartment market. Job growth is already under way and should get a big shot in the arm from increased government presence. As excess supply continues to be absorbed, Baltimore will likely emerge from the recession ahead of other major metro areas, placing it among the strongest performing markets along the Eastern seaboard.

Al Cissel and Scott Melnick joined Jones Lang LaSalle in March 2010 to lead the firm's Mid-Atlantic multifamily investment sales business. In the past five years, the duo has sold in excess of $5 billion of multifamily assets.