CITY HIGHLIGHT, JULY 2007

BALTIMORE CITY HIGHLIGHTS
Bill Pellington, John Meyer and Vincent Brocato

Baltimore Office Market

For the last two years, vacancy and rental rates have remained relatively flat in the Baltimore City Class A Office Market. Since fourth quarter 2006, the vacancy rate has reached 18.8 percent, an increase of 1 percent. As this rate considers the delivery of 170,000 square feet at 600 Exeter St. (165,000 square feet of leases in place), the 1 percent increase is negligible, suggesting that Class A leasing activity continues on a steady course. Though this may not appear completely accurate for the older product with a less desirable location, the new projects and Pratt Street Corridor buildings continue to thrive.

The 31 Class A buildings in the City Center (formerly known as the Central Business District) include all tiers of Class A product: regardless of floor plate, age or parking accommodations. Located primarily in the City Center and Harbor East, these properties can be subdivided into a premium group, incorporating newer buildings with views of Baltimore’s Inner Harbor, larger floor plates and high density parking ratios. Asking rents for the premium class range from $25 to $31, as opposed to $19 to $25 for the general Class A.

Additionally, the bargain Class A rental structures in the City Center continue to diminish. The trend of low rental rates, in an effort to regain tenancy, has been successful. Yet, participating buildings are nearing the low-mid twenties ($22.50 to $24) and still not back to their historic high rental rates. These rates are helping the 1970s vintage Class A maintain rates around $21.

Businesses are moving to Inner Harbor East. As was announced in mid-February, Legg Mason, Inc. will keep its corporate headquarters in Baltimore City. The firm has landed a new 15-year lease of approximately 300,000 square feet in a building to be constructed by developer H&S Development, Inc. The move is scheduled for summer 2009.

Also, Venable LLP has signed a lease for approximately 141,000 square feet at 750 E. Pratt St., leaving its longtime offices at 2 Hopkins Plaza. This represents clear movement to the east as 750 E. Pratt St. is in the “Gateway” area between the City Center and Harbor East.

This latest coup for Inner Harbor East demonstrates that this once emerging market has truly arrived. With the continued vision of several developers, this market will continue to attract corporate users and redefine the boundaries of Baltimore’s City Center as well as its skyline.

What’s more, Baltimore will continue to see older Class A projects rebound and reestablish the tenant base from the late 1990s and early 2000s, with the aid of aggressive marketing and rates of $21 to $22 per square foot.

— Vincent M. Brocato is a senior sales and leasing associate with Manekin, LLC, in downtown Baltimore.

Baltimore Industrial Market

Maryland was immortalized as “The Land of Pleasant Living,” thanks to a popular marketing campaign introduced for a local beer manufacturer in the 1950s and, 50 years later, that slogan still resonates for owners and investors of industrial real estate.

Duke Realty’s acquisition and redevelopment efforts of the former General Motors assembly plant, which is positioned adjacent to the city’s Seagirt Marine Terminal on Broening Highway, is grabbing the bulk of the headlines, thanks to the approximately 3 million square feet of industrial space planned for the 183-acre site. But there is good news throughout the metropolitan area as evidenced by the nearly 540,000 square feet of net absorption space for first quarter 2007.

The overall vacancy level is less than 9 percent for the more than 150 million square feet of industrial space comprising nearly 2,000 buildings in the Baltimore metropolitan market. And, even with major construction underway led by activity at Chesapeake Commerce Center (Duke Realty’s recently announced name for the GM site), there continues to be a seemingly insatiable appetite for industrially zoned land in this region. This demand is driving land prices to unprecedented levels fueled, in part, by institutional capital chasing additional opportunities.

The opening last fall of Maryland Route 43 in Baltimore County was welcome news to the development team of Baltimore Crossroads@95, an 1,100-acre business community that will feature more than 5 million square feet of industrial and commercial office space, complementary retail space and several full-service hotels. St. John Properties, First Industrial Realty Trust, Chesapeake Real Estate Group/Prudential and FRP Development are separately developing product.

The Baltimore-Washington Corridor is also a pleasant location to lease industrial buildings with owners and investors anxiously awaiting the positive economic impact spurred by the Base Realignment and Closure (BRAC) activity, in which Maryland emerged as a clear cut winner. Many are expecting BRAC to drive better uses for industrial land, and low inventory and climbing land prices in this submarket are creating steadily rising leasing rates. The major recent news is RREEF’s purchase of nearly 2 million square feet of industrial/warehouse product in Columbia, Maryland. Preston Partners, Lincoln/INVESCO, Merritt Properties and Liberty Property Trust are active players.

The majority of industrial development is occurring in and around the Port of Baltimore, Baltimore County East and the Corridor, with the Harford County and Cecil County submarkets experiencing less vibrant activity. More than 4.5 million square feet of industrial space is planned during the next 3 to 5 years, and the major question is Baltimore’s ability to absorb this new inventory.

The guess here is that we will be raising our beer glasses to “toast the market,” as the continued “good times” unfold.

— Bill Pellington is senior vice president of CB Richard Ellis in Baltimore.

Baltimore Retail Market

Retail has returned to downtown Baltimore and in a big, as in big box, way. With the completion of leasing for the retail component at Lockwood Place, positioned in the center of downtown, it can be said that the bar has been set very high. Big box retailers such as Best Buy and Filenes Basement have rediscovered the magic of setting up shop in an urban environment to capture the business people that enter the city on a daily basis, the new residents that have moved in and the convention delegates that visit Charm City and have free time to shop.

And why not downtown Baltimore? Currently there are more than 250,000 people residing in the city proper and an additional 220,000 come to work there everyday – add that to the 13,000 college students and 600,000 convention delegates that enter the market annually. Plus, millions more tourists travel to the renowned Inner Harbor each year.

A number of interesting trends are emerging concerning the different demographics of residents that are moving back downtown. They include empty nesters looking to simplify or downsize, young business professional moving in with friends, or the middle-aged business commuter who is tired of dealing with the long commute. To address these audiences with different needs, there are a variety of housing opportunities available. For the high-end residential markets, there is the Ritz/Carlton condominium project and the Four Seasons, which will be located on opposite sides of the Inner Harbor. These operators have recognized the demand and opportunity that the downtown market has to offer and, from a retailer’s perspective, the demographics are showing that the population and the incomes are rising.

While the retailers are feverishly working to catch up to this built up demand, developers have been busy anticipating their desires to locate downtown. Projects are planned in different areas of downtown including the Mechanic Theater redevelopment project, Canton Crossing and Inner Harbor East.

The Mechanic Theater – a former entertainment venue – is located several blocks from the Inner Harbor and will include 110,000 square feet of retail space among three levels, parking below the project and a 15-story residential tower. Canton Crossing is positioned on the east side of downtown Baltimore and will yield 270,000 square feet of retail space, along with 1.5 million square feet of office space, 500 residential units and 450 hotel rooms.

Inner Harbor East is the on-going mixed-use $1 billion development on the east side of the Inner Harbor that is comprised of hotels, office and residential towers, as well as a combination of 500,000 square feet of street level retail and restaurants. All of these projects have mixed-use components that have a significant portion of retail woven into residential areas. While these projects are located in three different areas of downtown, they provide great potential for retailers to thrive in a market once thought unlikely.

Baltimore City is ready for more retail. The people are there – and more are coming – the projects are underway, and national and regional retailers are hovering. Keep an eye on Charm City. 

— John Meyer is a principal with KLNB Retail, the retail division of KLNB LLC that is headquartered in Baltimore.


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