The national office market continues to face headwinds in the wake of the COVID-19 pandemic, and Baltimore is no exception. Shifting tenant preferences and the city’s evolving economic landscape have created challenges, with rising vacancy rates in some submarkets.
However, recent trends suggest that Baltimore’s office sector is stabilizing, with positive momentum in key areas.
Changing office landscape
For decades, Baltimore’s office market was defined by two primary submarkets: the traditional central business district (CBD) that is centered around Charles, Saint Paul/Light and Baltimore streets, and the Inner Harbor.
The CBD was home to corporate giants such as Alex. Brown & Sons (now part of Deutsche Bank), USF&G (now part of St Paul Insurance), T. Rowe Price and Maryland National Bank (now part of Bank of America). In the 1980s, the Inner Harbor emerged as a national model for waterfront redevelopment, attracting major tenants and commanding some of the city’s highest occupancy rates.
The early 2000s saw another shift with the rise of Harbor East and later Harbor Point, both of which drew high-end office tenants and further pulled demand toward the waterfront. More recently, Baltimore Peninsula has emerged as the next major office and mixed-use submarket.
Historically, vacancies created by tenant relocations to these newer developments were quickly backfilled, allowing the Inner Harbor to maintain stability while the CBD often struggled to keep pace. However, the post-pandemic office shift has disrupted this dynamic.
Post-pandemic trends
Like many cities nationwide, Baltimore is experiencing a flight-to-quality movement as tenants prioritize modern office space with high-end amenities. Previously, the rent premium in Harbor East and Harbor Point helped retain tenants in the Inner Harbor and CBD. Now, with many companies downsizing and cutting their footprints, the financial calculus has changed.
Nationally, JLL reports that 33.5 percent of new office leases are in buildings constructed after 2000. More notably, buildings delivered since 2015 have collectively absorbed 144.5 million square feet of positive net demand since second-quarter 2020, while all older office categories have collectively posted negative absorption. With new construction slowing significantly, recently renovated, second-generation buildings accounted for 27 percent of expansionary leasing activity in 2024 — a sign that tenants are prioritizing high-quality, well-located office space.
Baltimore mirrors this national trend. Harbor East and Harbor Point remain 80 percent leased, with pending commitments pushing occupancy to 84 percent by the end of the first quarter. A smaller peer set of off-water, late-80s properties in the CBD that have had generational updates, are projected to exceed 80 percent occupancy in 2025.
Meanwhile, vacancies continue to rise in the Inner Harbor. Once T. Rowe Price completes its move to Harbor Point, Inner Harbor occupancy will drop to 65 percent, underscoring the market’s shift toward newer, amenity-rich office spaces.
Signs of optimism
Despite these challenges, several factors indicate that Baltimore’s office market is stabilizing and adapting to evolving market conditions:
State of Maryland consolidation: The CBD has long held the city’s highest vacancy levels, but this is beginning to shift. A decade ago, the State of Maryland abandoned plans to redevelop its 1 million-square-foot State Center property, instead choosing to relocate 12 agencies and over 6,000 employees into downtown office buildings. These relocations, which began only a few years ago, are still in progress and are expected to be completed by the end of the year. As a result, several off-water, Class A buildings in the CBD are projected to exceed 80 percent occupancy.
Office-to-residential conversions: Over the past decade, 2.7 million square feet of office space has been converted to residential use, delivering over 3,400 units in the past six years. This ongoing trend is expected to continue, particularly in older office buildings that lack modern upgrades, further helping to rebalance supply and demand.
Positive national trends: Per JLL, third-quarter 2024 marked the first quarter of positive net absorption since fourth-quarter 2021, with leasing volume reflecting more than 92 percent of pre-pandemic averages. Downsizing rates have declined significantly, while rental rates continue to trend upward. Landlords have also seen some moderation in concession rates, signaling improved market conditions.
The national office development pipeline has dropped dramatically from 2019 levels, and underperforming inventory is being removed through conversions and redevelopments. With availability in new supply vanishing quickly, demand should spill over into older, high-quality product.
Major Inner Harbor redevelopment: Baltimore-based developer MCB Real Estate recently secured public approvals for a $1 billion Inner Harbor revitalization project. The plan includes 300,000 square feet of new commercial space, 900 residential units and 18.7 acres of public amenities. JLL projects that by 2029, the Harbor East, Harbor Point and Baltimore Peninsula submarkets will be more than 90 percent leased. The Inner Harbor’s reinvestment should help drive long-term office demand as well.
Investment opportunities: Double-digit cap rates are currently available in the CBD for long-term leased assets with strong credit tenants, such as the State of Maryland. As liquidity returns to the office sector, these yields are expected to compress, creating a near-term window for investors to capitalize on market displacement.
Declining crime rates: Baltimore recorded its lowest violent crime rate in 15 years, with a 41 percent decline since 2021, marking the second-lowest rate since 1980. Historically, public safety improvements have played a key role in boosting commercial demand and downtown activity.
Investment in downtown entertainment anchors: Several major venues in downtown Baltimore are undergoing significant upgrades, including: CFG Bank Arena ($250 million renovation); M&T Bank Stadium ($430 million investment); and Oriole Park at Camden Yards ($135 million in upgrades). Additionally, the public sector is increasing its focus on enhancing entertainment, arts and retail offerings in the CBD. These investments could help shift perceptions of the downtown office market, making it a more attractive destination for businesses.
Institutional commitments: Several major firms continue to reaffirm their presence in Baltimore. T. Rowe Price and Morgan Stanley have recently made long-term commitments to the city, while suburban tenants such as DLA Piper and CFG Bank have relocated to downtown, suggesting that Baltimore’s core office market still holds competitive advantages.
Looking ahead
Baltimore’s office market remains in transition, but long-term fundamentals suggest a path to stabilization. The flight-to-quality trend is driving demand toward the city’s most modern office properties, while continued state leasing activity, office-to-residential conversions and major redevelopment efforts are rebalancing supply.
While challenges remain, particularly for older office stock, strategic investments in the Inner Harbor, public safety improvements and corporate commitments to the city indicate that Baltimore’s best-positioned submarkets are poised for continued tenant and investor interest.
As the market continues to adjust, these factors provide reasons for optimism in the years ahead.
— By Jay Wellschlager, managing director of JLL. This article originally was originally published in the February 2025 issue of Southeast Real Estate Business.