IRR-Baltimore Mid-Year Viewpoint 2015 Local Market Report - Office
The overall Baltimore office market is improving slightly as the economy slowly emerges from the recent recession. Vacancy remains above the 15% mark while rental rates are stagnant. Although market conditions are still generally weak, the area has seen pockets of concentrated growth. Education, healthcare and government are the main demand drivers in the region and growth is centered around these economic epicenters.
The largest concentration of new office development is tied to demand from Fort Meade/National Security Agency (NSA) in Anne Arundel County, midway between Baltimore and Washington DC. Regional REIT COPT (Corporate Office Properties Trust) leads the way with development at National Business Park adjacent to the fort. Speculative development has been placed on hold temporarily as COPT evaluates demand from the U.S. Government and associated defense contractors, which is nearly exclusively tied to defense spending. Other developments related to Fort Meade/NSA include Emerson Corporate Center and Annapolis Junction. Fort Meade got a boost from the U.S. Military’s base realignment, known as BRAC, which had relocated thousands of defense personnel to Fort Meade over the past couple of years. Fort Meade fared well from BRAC while Aberdeen Proving Ground in Harford County did not live up to its expectations.
Downtown Baltimore continues to underperform with the traditional CBD losing many of its long time tenants to prime office space on Pratt Street along the Inner Harbor or trendy Harbor East. Harbor East and neighboring Harbor Point have become home to some of Baltimore’s most prominent companies Legg Mason, Morgan Stanley, and soon to arrive Exelon Corp. OneMain Financial’s recent (February 2015) decision to move its headquarters to Harbor East brings the Legg Mason Building to stabilized occupancy. One bright spot for the traditional CBD is the decrease in overall inventory as many of downtown’s older Class B/C office buildings have been converted to residential or hotel uses. Despite the increase in inventory, the CBD’s vacancy rate has remained above 20%. From the capital markets perspective, things are looking brighter. While not recording a single transaction of a Class A property since 2007, the CBD has recorded four investment grade sales in the past 18 months: 1 E. Pratt Street (January 2014, $165/SF), 1300 Thames Street (April 2014, $340/SF), 300 E. Lombard Street (February 2015, $162/SF), and 250 W. Pratt Street (March 2015, $172/SF). In the long run, the health of the Baltimore office market will depend on continued growth from its demand drivers in the education, healthcare and government industries. Short term growth, though, is expected to be tempered. Despite stagnant market fundamentals, the capital markets are on the rebound with several recent high profile sales in the Baltimore CBD.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.