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CITY HIGHLIGHT, JULY 2004
BALTIMORE PREPARES FOR FUTURE DEVELOPMENT
The commercial real estate environment in Baltimore has always
been dynamic, whether you’re talking about downtown or
the suburbs. This month, Southeast Real Estate Business asked
experts from Manekin LLC and MacKenzie Cushman & Wakefield
Alliance to describe what’s going on in the various markets.
Industrial
The Port of Baltimore has always been integral to Baltimore
City’s economy. Its location, rail and water transport
offer competitive advantages to the city’s manufacturers.
However, the buildings, docks and roadways servicing the port
have become outdated and disadvantaged compared to more modern
manufacturing and distribution facilities. The older industrial
buildings have lower ceilings, narrower columns, impeded interstate
access, outdated refrigeration and limited dockage.
Following the decay and functional obsolescence that accompany
age, Baltimore’s vast waterfront acreage is experiencing
a steadfast renaissance. Its historic buildings are being
redeveloped into state-of-the-art office buildings and posh
waterfront dwellings. As uses change from industrial to more
profitable office and residential developments, available
waterfront land is becoming too expensive to support industrial
uses. Industrial users are quickly finding themselves “boxed-out”
and unable to compete with the high land prices offered by
residential and office developers.
As a whole, industrial buildings within 2 miles of the Baltimore
waterfront, both modern and old, are 56 percent vacant with
an average rental rate of $4.04 per square foot. Baltimore
recognizes the importance of this industry to its economy;
however, it faces the increasing challenge of finding locations
to attract manufacturers where they can operate efficiently
and profitably. The demand for these sites is there, evident
by the success of the Holabird Industrial Park and the redevelopments
of the Coca-Cola and Esskay plants. The Baltimore waterfront
also attracts companies “priced out” by the New
York and New Jersey ports.
One of the many hurdles facing the city is the availability
of suitable sites. To help with industrial development, the
city is carefully rezoning parcels, offering tax advantages
and citing four areas as potential industrial sites: Carroll-Camden,
West Baltimore, Fairfield and Hollander Ridge.
Though Baltimore is making strides to encourage developers
to rejuvenate the industrial market, investors are concerned
that their investments will be encumbered by future restrictions.
There is money to be made in the Baltimore Port. The city
and its developers will continue to improve the infrastructure,
focus zoning and development restrictions, and market Baltimore
as a viable industrial and manufacturing city. It has an advantaged
location and the natural resources to be a leading industrial
port. All it needs is affordable industrial land, modern buildings
and tenants.
— Athan Sunderland, senior leasing and sales associate,
Manekin LLC
Retail
There are a number of new retail projects, redevelopments
and retailers entering the Baltimore market.
Security Square Mall, located on the west side of Baltimore,
recently announced the opening of Seoul Plaza in the 170,000-square-foot
former JC Penney store. Seoul Plaza comprises 59 stores specifically
designed to serve the local Asian population, which has grown
significantly in the western quadrant of Baltimore and Howard
counties. This may be the first of many projects targeting
ethnic consumers. The Latin population, which has increased
over the last decade, primarily on the east side of Baltimore,
may represent a prime opportunity for this type of project.
Belvedere Square, located in Baltimore City, has successfully
restored itself to its prior glamour. The project contains
24 stores, including a “stall” food market, bigger
and better than before. The Square is anchored by its latest
addition, Ryan’s Daughter, a 6,500-square-foot authentic
Irish pub featuring traditional Irish drink and food as well
as mainstay American menu items.
Petrie Ventures of Annapolis shows no signs of slowing down.
Although just completing the Centre at Golden Ring, the company
is busy building two Target stores as anchor tenants for the
redevelopments of Centre at Glen Burnie and Centre at Forestville
in Prince Georges County. In addition, Petrie is getting ready
to break ground on the Centre at Laurel, which will be anchored
by Shoppers Food Warehouse.
Off the Glass LLC, a group run by former professional hockey
player Gordon Lane and supported mainly through the investments
of current and former NHL players, has just purchased Riverside
Roastery & Expresso. Riverside has two existing locations
in Columbia and will soon be opening another at the Shops
at Kenilworth in Towson. This expansion into the coffee business
is the first diversification for Off the Glass, which also
owns and operates 12 Bennigan’s Bar and Grille restaurants.
Spurred by the success of Nottingham Properties’ The
Avenue at White Marsh, Greenberg Commercial Development is
putting the finishing touches on the Village at Waugh Chapel
in Crofton and is well underway in converting Hunt Valley
Mall into another open-air lifestyle center to be called Hunt
Valley Town Center. Meanwhile, The Cordish Company is enjoying
the success of its Boulevard at Cap Center in Largo. With
few exceptions, all new retail projects in the area are traditional
grocery-anchored strip centers or open-air lifestyle centers
featuring street-level storefronts and maintenance charges,
which are less than those necessary to operate an enclosed
mall.
— John Harrington, senior vice president/principal,
MacKenzie Cushman & Wakefield Alliance
Office
Thirty buildings totaling more than 8 million square feet
are included in Manekin’s Class A market survey of Baltimore’s
central business district. Landlords are offering approximately
1.6 million square feet of vacant space, which reflects a
vacancy rate of 19 percent. Furthermore, there is 264,000
square feet of available sublease space. This past year has
seen a drastic decline in the market since the same period
last year, and these vacancy rates represent record high levels.
Most, if not all buildings, are offering incentives, such
as an 18-month lease term “bought out” for a 7-year
deal, free rent (1 month for each year), broker incentives
of up to 1.5 percent per square foot plus vacation rewards
and buyouts of existing rental obligations up to 12 months
in each category. Overall, this keeps the effective rent for
tenants down, while allowing landlords to maintain stronger
rent rolls.
The most visible projects thus far include:
• Lockwood Place at 500 Pratt St.: Trammell Crow Company’s
12-story, 271,000-square-foot office tower will open in July.
The building’s proximity to and views of the Inner Harbor
should help, but currently there are no office prospects in
negotiations to take space.
• 750 E. Pratt St.: Constellation/Whiting Turner’s
construction of a 338,000-square-foot office/retail complex
has Constellation Energy as its lead tenant with approximately
67,000 square feet. Constellation has vacated its premises
at 250 W. Pratt St. and a portion of its building on Liberty
Street. Also, Sierra Military leased 19,000 square feet but
may vacate due to the loss of a government contract. The balance
of the building (221,000 square feet) has been available since
fourth quarter 2002.
• Other projects such as Dugans Wharf (172,000 square
feet and 74 percent occupied) and Bond Street Wharf (214,000
square feet and 96 percent occupied) opened for business in
2003. Their locations on and around the waterfront and amenities
of Fells Point are keys to their success.
Rental rates have remained fairly stable over the last 24
months, having seen a previous decline of approximately 10
percent. For the next 12 to 18 months, the status quo will
remain at moderately low levels of leasing activity in the
Baltimore CBD; bread-and-butter deals will be 2,000 to 5,000
square feet.
Hopefully, the vast amount of sublease space will attract
some larger users from outside of the city to stop the inner
tenant cannibalism created by simply switching spaces within.
Filling these larger blocks should stabilize and even increase
rental rates to their values 30 months ago.
— Matt Haas and Vince Brocato, senior sales and
leasing associates, Manekin, LLC
©2004 France Publications, Inc. Duplication
or reproduction of this article not permitted without authorization
from France Publications, Inc. For information on reprints
of this article contact Barbara
Sherer at (630) 554-6054.
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