Commercial Real Estate in Baltimore
Baltimore is the largest city in the U.S. state of Maryland and the 24th largest city in the country. It is located in the central area of the state along the tidal portion of the Patapsco River, an arm of the Chesapeake Bay. The independent city is often referred to as Baltimore City to distinguish it from surrounding Baltimore County. Founded in 1729, Baltimore is the second largest seaport in the Mid-Atlantic United States and is situated closer to Midwestern markets than any other major seaport on the East Coast. Baltimore’s Inner Harbor was once the second leading port of entry for immigrants to the United States and a major manufacturing center. After a decline in manufacturing, Baltimore shifted to a service-oriented economy, with the Johns Hopkins Hospital and Johns Hopkins University serving as the city’s top two employers.
At 621,342 as of July 1, 2012, the population of Baltimore increased by 1,100 residents over the previous year ending over six decades of population loss since its peak in 1950. The Baltimore Metropolitan Area has grown steadily to approximately 2.7 million residents in 2010; the 20th largest in the country. Baltimore is also a principal city in the larger BaltimoreâWashington metropolitan area of approximately 8.4 million residents.
Commercial Real Estate Baltimore
After hitting record high vacancy rates during the great recession the Baltimore commercial real estate appears to have finally turning a quarter. Recent reports suggest that commercial real estate vacancy rates are declining and the rents are on the rise. Below we will examine some of the trends in the commercial real estate market in Baltimore and what we can expect to see going forward.
According to recent statistics released by MacKenzie Real Estate Services regional vacancy rates for Baltimore fell from 15.1 to 14.9% between the first and second quarters of 2013. The best performing areas were those in the North Western Baltimore corridor. In particular the National Business park in Anne Arundel County had a very low vacancy rate at 5%. Hunt Valley is the market with the lowest overall vacancy rates of 11.45%.
This decline in vacancy rates is backed by another report released by Cassidy Turley real estate services which shows that in the second quarter of 2013 almost 213,000 square feet of property was absorbed. This brings vacancy rates back from highs experienced after the financial crisis to figures closer to the historical average for Baltimore. Demand for office supply coupled with tight supply is helping to push up rents. According to the Cassidy Turley report rents for commercial properties are now reaching a $26.00 per square foot for class A office space and on average are renting for $23.00 per foot.
One of the primary factors driving lower vacancy rates and higher rates are better economic and employment conditions. Employment is rising in the professional and business service sectors which are helping to underpin growth. It is also expected that demand for commercial property will be driven higher if employment improves in the trade and transportation industries.
Another factor contributing to lower vacancy rates is the lack of new development which is leading to lower net supply. It is also worth noting that a significant portion of the decrease in vacancy rates is due to the demolition of existing buildings or the conversion of existing buildings into residential properties.
Peter Kimmel of the Baltimore office of commercial real estate firm CBRE says that one of the biggest challenges facing the commercial real estate market is a âlack of productâ. He notes that a lot of commercial property in downtown baltimore is being converted into multi housing residential property. While this is creating a pool of younger and skilled workforce in downtown baltimore it is restricting the amount of property available for office use.
Another trend is a flight towards quality as tenants move from class B locations to now affordable class A locations. Recent examples of this can be seen in the move of businesses such as Informs and Enterprise Community Partners from class B office space to class A.
Overall an increase in job growth and a sustained economic recovery is expected to see demand for office space grow. This should have a positive impact on both rents and vacancy rates. As supply tightens we can also expect to see an increase in construction as developers seek to fill the gap.
- Vacancy rates for office space in Baltimore falling from 15.1% in the first quarter to 14.9% in the second.
- “Flight to Quality” as attractive rents see corporate tenants shift from Class B to Class A office space.
- Lack of available inventory is one of the most significant challenges facing Baltimore commercial real estate market.
- Rents for Class A office space now averaging $26.00 per square foot.
- Job growth and improved economic conditions expected to positively impact rents and vacancy rates going forward.