Unprecedented development is underway across the Baltimore metro area with more than $6.6 billion of infrastructure and major development projects in the pipeline, and office-using employment remains strong. More than 574,000 people are employed in a diverse set of employment sectors that require offices, including professional and business services, government, financial services and tech and information.
The past year, unemployment fell in each Maryland submarket, with Baltimore dropping 140 basis points, which is similar to the national unemployment rate that decreased 150 basis points.
In the second half of last year, several public sector agencies relocated into the Central Business District (CBD) from Midtown and Mount Vernon locations, pushing net absorption positive and vacancy negative. This helped state and local government tenants lead all sectors in leasing activity in the fourth quarter of 2022, accounting for 56 percent of all leases signed.
The Maryland Department of Health signed the largest lease of the quarter with its new 463,000-square-foot lease at 300 N. Greene St. Other State of Maryland relocations include Department of Labor, Office of the Comptroller, Department of Budget & Management, Department of Planning and Department of Aging. Combined, these state government tenants leased 761,000 square feet in the CBD during the fourth quarter.
Q1 2023 market update
Office market fundamentals posted a first-quarter occupancy loss after back-to-back quarters of positive absorption. The market recorded 205,123 square feet of negative absorption during the first quarter, performing similarly to second-quarter 2022 when net absorption was negative 230,738 square feet. The only quarters generating positive absorption in the Baltimore market since third-quarter 2020 were the third and fourth quarters of 2022.
Gross leasing activity declined this quarter with 668,681 square feet of total leasing activity. This was about half of the 1.3 million-square-foot gross leasing activity from last quarter, which was propped up by strong government leasing.
First-quarter 2023 was in line with the average of the first three quarters of 2022 (excluding the outlier fourth quarter). Business services tenants dominated the top transactions in the quarter, followed by financial services and healthcare.
Vacancy increased 38 basis points over the prior quarter to 18.2 percent, the highest it has been in the past five years. Pandora moved out of 72,000 square feet at 250 W. Pratt St. as it gave back space in a move to New York.
Sublease availability in Baltimore remains elevated at 1.5 million square feet, which is 94 percent above pre-pandemic levels and has fluctuated between 1.4 million and 1.6 million square feet in recent months. A recent example is S3 Shared Solutions subleasing 38,915 square feet at 1501 S. Clinton St. from Prometric.
The vacancy rate across the Baltimore office market is elevated 287 basis points from the pre-pandemic level of 15.3 percent. Seventeen tenants sized 10,000 square feet or larger signed leases totaling 420,270 square feet during the first quarter.
And despite inflation, the average Baltimore office rent has remained relatively flat. Brokers are seeing trends of landlords increasingly offering free rent and other concessions to entice tenants while keeping rental rates static.
Submarket look
The CBD was the most active submarket of the year, leasing more than 1.3 million square feet, which accounted for 31 percent of the Baltimore metro leases. Baltimore City overall, which includes the CBD, Baltimore City East, Baltimore City West, Baltimore City North and Midtown/Mt. Vernon, totaled 2.3 million square feet, or 55 percent of the region’s leasing.
The lower suburban submarkets including Annapolis, BWI, Columbia, Ellicott City and Route 2/3 had the second-most activity for the year, leasing 1.5 million square feet, or 35 percent of all activity. Columbia contributed the most leasing activity to the lower suburban submarkets with 854,202 square feet leased, or 56 percent of the lower suburban submarkets’ activity.
Upper suburban submarkets accounted for 427,623 square feet for the year, or 10 percent of all leasing activity. The upper suburban submarkets were driven up by Towson/Timonium leasing 124,343 square feet and Hunt Valley leasing 141,615 square feet, or 62 percent of all upper suburban activity.
Development still trickling
Development activity is slowing down following the 402,896 square feet of completions in fourth-quarter 2022. No buildings broke ground or delivered in the first quarter of 2023.
Eleven properties totaling 1.2 million square feet remain under construction across Baltimore. Most notably the UMB Bio Park at 4 N. Martin Luther King Jr. Blvd. broke ground in November and is scheduled to deliver in fourth-quarter 2024, bringing 250,000 square feet of Class A laboratory and office space.
40Ten Boston, Baltimore’s first mass timber office building that will span 104,500 square feet, is scheduled to deliver this quarter. The new global headquarters of T. Rowe Price, a 470,000-square-foot building located at 1307 Point St. in Harbor East, is scheduled to deliver in second-quarter 2024.
— By David Fields, Executive Vice President, CBRE. This article was co-authored by CBRE Research Analyst Steven Wagner. This column was originally published in the April 2023 issue of Southeast Real Estate Business.