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Historical Overview
DEFINING THE MARKET’S BOUNDARIES
Prior to the mid-1990s, Baltimore’s traditional Central Business District (“CBD”) was concentrated in the area south of Saratoga Street, west
of President Street, north of Conway Street and east of Howard Street. From 1963 - 1998, 31 office buildings totalling approximately
8,900,000 square feet were developed (or redeveloped) in this area. However, with the growth of downtown Baltimore’s West and East sides,
and the development south of the Inner Harbor in Locust Point, the traditional Central Business District has expanded.
Today, the western border of the downtown office market is Martin Luther King, Jr. Boulevard, thereby encompassing most of the expansion
by the University of Maryland at Baltimore, as well as the University of Maryland Medical Systems (now referred to as UMMS). On the east
side, the downtown office market has expanded into Harbor East, Fells Point, and on to Canton. South of the Inner Harbor, the Tide Point
adaptive reuse has triggered office, retail, and residential development in Locust Point.
As a result of this growth – both geographic and development – Downtown Baltimore’s office industry today consists of 68 competitive
properties totalling approximately 13,263,836 square feet. In order to understand the nature and condition of the Baltimore office market, it is
helpful to know where it has been, how it has evolved, and where it may be headed.
CHARLES CENTER – A NEW BEGINNING
Simply stated, the origin of Baltimore’s office building industry, as well as the rebuilding of downtown Baltimore, started in 1963 with the
Charles Center Urban Renewal Project and the opening of One Charles Center and the Blaustein Building (One North Charles). At that time,
the geographical center for office buildings in Baltimore’s CBD became the intersection of Charles and Fayette Streets. Two Charles Center
(residential apartments and associated retail) and 201 North Charles reinforced that “center of gravity.”
The four office properties built during the 1960s in the Charles Center Urban Renewal Project total 944,828 square feet. Today, more than 50
years later, those buildings are still in use and currently have a vacancy rate of 20.76%, with asking rates ranging from $16.75-$21.75 per
square foot, full service.
THE MOVEMENT TOWARDS THE INNER HARBOR
During the 1970s, office development in the Charles Center Urban Renewal Project continued and grew south along Charles Street towards
Pratt Street. Buildings constructed during this period included 25 South Charles (1972), 36 South Charles (1973), and 100 South Charles
(1979). This growth southwards was both natural and planned, asthe Cityhad commenced its redevelopment efforts in and around Baltimore’s
Inner Harbor, three blocks south and two blocks east of the Charles and Fayette Streets’ “center of gravity.” As those 1970s Charles Street
office buildings moved closer towards Pratt Street, so too did the downtown office industry’s “center of gravity.”
By the end of the 1970s, nine new office buildings totalling 3,073,193 square feet (Phase I of 100 East Pratt, the IBM Building, included) were
constructed. Of these nine buildings, five were along or adjacent to Pratt Street, the rest north of Pratt Street along the Charles Street corridor
and west to Hopkins Plaza (one block east of the former western CBD boundary of Howard Street). Of these nine buildings, two were
fundamentally corporate user buildings (100 Light St. for USF&G and 1 East Pratt Street for C&P Telephone), one was developed and operated
by the State government (The World Trade Center), and the rest were developer-related buildings partially pre-leased but nonetheless
speculative in nature.
BUILDING GROWTH DURING THE 1980S
During the 1980s, an additional fifteen (15) buildings (12 new and 3 adaptive re-use) totalling 3,300,519 square feet were constructed in
Baltimore’s CBD. These buildings were widely disbursed throughout the Central Business District. Two of the buildings (120 East Baltimore
and 7 St. Paul) were constructed adjacent to each other along Baltimore Street, above the Charles Center Metro Station. (This was at a time
when Baltimore was pushing for more mass transit and transit oriented development.)
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As a general rule, those properties closest to the Inner Harbor have performed better economically over time than those furthest from the
repositioned center of the CBD (Pratt and Light Streets during the 1980s). Buildings such as Harbor Court Office Tower (575 South Charles)
and Redwood Tower (217 East Redwood) continue to have spotty records and struggle financially due to their secondary market locations,
aging infrastructure, and the existence of better, more competitive product.
Of the 3, 300,519 square feet represented by these fifteen 1980s buildings, the vacancy rate today is 21.97%. Rental rates range from $18.50
to $27.75 per square foot, on a full service basis. And even quality buildings like 7 St. Paul and 120 E. Baltimore nonetheless suffer from a
Baltimore Street location 3 blocks north of the Inner Harbor.
DECLINE AND RESURGENCE DURING THE 1990S
During the first few years of the 1990s, two new buildings (1 South Street and 10 S. Howard) and an expanded IBM Building (renamed 100
East Pratt) added 1,185,323 square feet to the Class “A” CBD market. 1 South (479,000 square feet) and the expanded (by 300,000 SF) 100
East Pratt came online just as the real estate depression of the early 1990s began to take hold. Both properties experienced extreme financial
difficulty and saw pro forma rental rates of $27.50 per square foot fall by as much as $10.00 per square foot during the real estate depression.
The City Crescent project at 10 S. Howard Street (1993) was developed in response to a request for proposal by the Army Corps of Engineers.
However, that project would not have been constructed but for a supplemental lease guarantee from the City of Baltimore, thereby enabling
financing of the project. The fourth property, The Power Plant Office (601 East Pratt), contained 100,000 square feet of adaptive reuse space
and was built as part of The Cordish Company’s retail redevelopment of The Power Plant.
Today, of the four buildings constructed during the 1990s, the shining star of downtown real estate is 100 East Pratt, 96% leased and home to
T. Rowe Price. Furthermore, it still commands some of the highest rental rates in Baltimore’s CBD, testimony to its premier Inner Harbor
location and roster of quality tenants.
One South Street, known as a “Class A building in a B location”, stabilized in the mid-1990s after a sluggish start when Alex. Brown & Sons
leased nearly half of the property for its corporate headquarters. However, as of 2012, the building – and its third ownership - is once again
challenged by relet vacancy (158,896 SF), and the departure of Deutsche Bank (the successor to Bankers Trust, which acquired Alex. Brown,
from all but 20,000 SF of the space initially leased. Quoted rental rates in the low-rise portion of the building are now $19.50/SF; the high rise
is quoting $25.00/SF. Both of these asking rates are less than rental rates achieved when the building opened in 1992.
The Power Plant Office Building, which lost Arthur Andersen as its lead tenant due to the fallout from Enron in the early 1990s, has rebounded
nicely with the re-leasing of the Andersen space to NeighborCare and, after NeighborCare was acquired and relocated, to The Design
Collective.
Today, the vacancy rate for these four 1990s properties is 16.10%. Asking rental rates range from a low of $17.00 per square foot to a high of
$30.00 per square foot on a full service basis.
2000 – 2010 The New Millennium’s First Decade
INSIDE THE TRADITIONAL CENTRAL BUSINESS DISTRICT
With the exception of the 100,000 square foot Power Plant Office redevelopment in 1998, no new commercial office construction occurred in
Baltimore’s Central Business District from 1993 until the ground breaking at 750 East Pratt in May 2001. (That is not a misstatement. For more
than 8 years, there was no new office building development in Baltimore’s CBD.). Once construction of 750 East Pratt ended the drought, other
office building development occurred in the traditional downtown area, most notably The Cordish Company’s Dugan’s Wharf Office Project in
2002 of 172,000 square feet and Trammell Crow’s Lockwood Place (2004), a mixed use office-retail complex featuring a 260,850 square
feet of Class “A” office.
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Constellation Energy anchored 750 East Pratt, which nonetheless experienced a very slow lease up. Only the relocation of the Venable law
firm from 2 Hopkins Plaza in 2009 (6 years after 750 East Pratt opened) enabled the building to achieve 100% occupancy. The Cordish
Company’s Dugan’s Wharf experienced a rapid lease up, spearheaded by leases with Ernst & Young and MuniMae. It remains fully occupied
today despite the demise of MuniMae. As for 500 East Pratt, that project succeeded due to the relocation of Saul Ewing from 100 South
Charles and Reznick Fedder from 2 Hopkins Plaza. Both firms felt a new Pratt Street location was an important part of re-positioning their
respective firms in a more visible way, both from a location and an image perspective.
Of the square footage represented by these three projects (747,153 SF), there are currently 45,240 square feet available, the overwhelming
majority (41,705 SF) being sublet space at 750 E Pratt and Lockwood Place.
EXPANSION OF THE OFFICE MARKET OUTSIDE THE TRADITIONAL CBD
The big news during the first decade of the new millennium was the dramatic expansion of office space outside the traditional central business
district. This expansion started cautiously at first, with significant pre-leasing, use of historic tax credits, tax abatements, and anything available
to better mitigate or manage risk. Initial projects completed during the mid to late 1990s included: 1) the adaptive reuse of the American Can
Co. property in Canton (1998); 2) a new mixed used office- residential project at 1000 Lancaster with Sylvan Learning Systems as the lead
tenant (1996); and 3) and the Bagby adaptive reuse (1999) near Little Italy. However, it was in Harbor East and Fells Point that a veritable
explosion of activity occurred from 2000 – 2009.
Harbor East/Fells Point
Harbor East and Fells Point, virtually non-existent as a defined office submarket prior to 2000, now account for 12 buildings totaling
1,942,936 square feet. While some of the properties are adaptive reuse in nature (e.g. Bagby, EJ Codd, and Dynasurf), the majority
of the inventory has been new construction and the work of H&S Development. Owned by baking magnate John Paderakis, H&S
Development has been the master developer of the 11 acres comprising Harbor East since Paderakis bought the property – at the
request of then Mayor William Donald Schaefer – out of the Old Court Savings & Loan bankruptcy.
After the successful development of 1000 Lancaster in 1996, H&S added 1001 Fleet (2000), Bond Street Wharf (2002), 650 Exeter
(2007), 100 International (Legg Mason Tower in 2009), and Thames Street Wharf (2010) to its office portfolio, In addition, there have
been residential properties, retail properties, and a slew of hotels (Four Seasons, Marriott, Courtyard, etc.) added to the mix as well.
As a result, the area has been transformed and adds a new dimension to the downtown.
The success of development in Harbor East and Fells Point has: 1) expanded the traditional CBD; 2) provided office, residential and
retail options not previously existing; and 3) attracted both aging baby boomers and twenty something’s into the City. But the move
eastward did not stop in Fells Point. It went east to Boston Street and all the way to I-95.
Canton
There are those who would contend that during the first 10 years of the millennium, Canton was arguably reborn. Whether people
agree on that or not, there is one thing everyone seems to believe - the surge in residential development along Boston Street brought
home owners back into the City from suburban locations. New restaurants around Canton Square brought in young people, who in
turn bought and renovated houses in the area. And what started as a modest exercise in adaptive reuse (The American Can
Company on Boston Street) spurred the development of Canton Crossing and the redevelopment of Brewers Hill. Together, these
projects offer more than 1,000,000 SF of new and adaptive reuse office space in a submarket that did not previously exist.
At the present time, the vacancy rate in the Canton submarket for the eleven (11) buildings totaling 1,163,038 square feet is 7.26% -
remarkably healthy considering the overall condition of the market and the economy.
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Yet while the downtown was expanding eastwards through Harbor East, Fells Point, and Canton, a residential and office boomlet was
happening West and South of the City’s Inner Harbor.
Locust Point/Camden Yards
The first glimpse of west side office development occurred as almost an afterthought – what do you do in the large warehouse
that would become part of Orioles Park at Camden Yards? The answer was simple – lease the space for offices to the Orioles,
the Maryland Stadium Authority, and anyone else seeking an adaptive reuse overlooking a new ball park with cost effective
parking for employees. This worked well, adding 350,000 SF of office space to the market in the early 1990s. But how does one
explain Locust Point?
Long a blue collar bastion of manufacturing facilities (e.g. Proctor & Gamble, Coca-Cola, and Domino Sugar), row houses, and
neighborhood bars, Locust Point has experienced a dramatic change in use, population, and demographics. And it all started with
the Struever Bros. acquisition and redevelopment of the former Proctor and Gamble manufacturing plant in Locust Point in 2000.
Since then, Locust Point has become another area in Downtown Baltimore that has gained acceptance as a “non CBD” office – and
residential - location.
Locust Point is home to Tide Point, a 385,000 SF adaptive reuse of the former Proctor and Gamble manufacturing facilities in
Baltimore. Recently acquired by Under Armour for its headquarters campus, Tide Point is also home to architects Ayers Saint Gross,
AOL, Datapoint services, and other 3rd
party tenants. In addition, the success of Tide Point spurred other office development (The
Foundry at Fort - 2003) and McHenry Row (2011). Moreover, since the advent of Tide Point, Locust Point has become a much more
desirable urban residential submarket, with a surge in townhome development as well as cutting edge residential adaptive reuses like
Silo Point.
The Results of Expansion outside the CBD
With the growth of non CBD office submarkets downtown, there has been a concern that firms will leave the traditional CBD for
locations in Harbor East, Fells Point, Canton, and Locust Point. Initially, in the period 2000 – 2008, that was not the case, with most
of the growth in Harbor East coming from firms new to the downtown (Sylvan Learning Systems) or related spin offs (Caliper,
Educate, Laureate, etc.) The same could be said for Tide Point, where the initial growth came from Advertising.com (now AOL) and
Under Armour, firms never located in the CBD to begin with. However, over time the non CBD locations in the downtown are proving
attractive office leasing options (and alternatives) to the traditional CBD.
The 2009 relocation of Legg Mason’s headquarters from 100 Light Street to a new building in Harbor East caused more firms
previously located in the traditional CBD to view Harbor East as a serious alternative. Firms such as Smith Barney (now Morgan
Stanley), Hogan Lovells, and RSM McGladrey opted for a Harbor East location due to the “live-work-play” ambiance of the area.
Canton has also become increasing popular as a non CBD office location as it is easily accessible to I-95 and offers free or lower
cost parking for employees.
Due to the increasing popularity of non CBD office locations, owners of CBD buildings – particularly Charles Center era buildings
and/or buildings north of Lombard Street – will become more aggressive as it relates to rents, concessions, and amenities. However,
as Baltimore already has a well-deserved reputation for being a “cost effective” place in which to do business, it is expected that an
office leasing market will continue to thrive by servicing companies wanting to lease space at a rent structure 50% less than found
in Harbor East, Canton, and Locust Point.
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The New Decade – 2010 to the Present
Of the 68 buildings tracked by Colliers totaling approximately 13, 200,000 square feet as of November 1, 2012, there are currently 2,236,445
square feet available (1,927,488 of relet space and 270,957 square feet of sublet space). This generates an overall vacancy rate of 14.89%,
better than the national vacancy rate of 17.1% according to the Wall Street Journal. However, even though the vacancy rate has improved
substantially during the previous 36 months, Baltimore City’s office market still faces many of the challenges previously confronted in the early
1990s: 1) an excess supply of space in secondary locations in the CBD, i.e. Charles Center; 2) a flat or uncertain economy; 3) the consolidation
or loss of local businesses, causing negative absorption of space; and 4) the loss of economic drivers fueling the demand to fill the supply.
By way of example, the major decline in downtown Baltimore office space requirements during the 1990s was the result of, among other
things: 1) an oversupply of product due to easy credit; 2) a poor local economy reeling from the consolidation of local banks (e.g., Equitable
Trust, Maryland National, Union Trust, Bank of Baltimore); 3) the relocation and subsequent sale of USF&G, a major employer and business
leader; and 4) the loss of major law firms from the CBD through relocation to Baltimore County (DLA Piper) or closure (Smith Somerville &
Case; Frank Bernstein Conaway & Goldman). No one knew in the mid-1990s what would be the economic engines that would absorb the
nearly 1.2 million square feet of Class A office space that had been put back on the market. But economic engines did appear, with the growth
of local financial services companies (Legg Mason, T. Rowe Price, Constellation Energy), and the emergence of new companies (Sylvan,
Advertising.com, Under Armour, Vertis, Sierra Military Health, etc.)
Starting with the commencement of the most recent economic meltdown in 2007, Baltimore City has again lost several of the companies that
created the economic drivers fueling the growth of the office market since 2002. Some of these companies were acquired by others; e.g.,
Mercantile Bank, Provident Bank, Ferris Baker Watts, and Advertising.com. Other companies have gone out of business or left Baltimore, e.g.,
The Examiner, Sierra Military Health, and Performax, to name a few. And many companies, particularly financial services companies, have
downsized due to business consolidations and capacity outside Baltimore for accomplishing certain tasks, e.g., Bank of America and Wachovia/
Wells Fargo.
The two questions most people are asking today are:
1) What is the landscape of the downtown office market during the next 2 years?
2) What are the new economic drivers and how will they impact the leasing of office space?
The Office Leasing and Development Landscape
With the exception of the office properties north of Lombard Street and in the Charles Center area, the prognosis for office occupancy and
development is good the next 24 – 36 months. Pratt Street properties will continue to lead the market, with little new development programmed
outside the CBD. Currently, there is no new office construction underway in the downtown area. Furthermore, the one building on fast track
– Harbor Point - is substantially pre-leased to Exelon for its Baltimore headquarters.
When Exelon (Constellation Energy) moves out of 750 East Pratt and 111 Marketplace in 2014, approximately 440,000 SF of competitive space
(190,000 at 750 East Pratt and 250,000 at 111 Market Place) will go back on the market. This is the equivalent, by Baltimore standards, of one
and a half averaged-size office buildings. The good news is that the vacated space is along Pratt Street, which has the highest occupancy in
the Charles Center - Inner Harbor submarket. The additional good news is that the vacancy will provide large blocks of space, which are
needed. The challenge will be in leasing the 250,000 SF in 111 Market Place, which has a large (40,000 SF) floorplate in a market where the
average office lease is 7,000 SF.
Regrettably, the picture is not as bright for non-Pratt Street properties in the CBD, especially those located north of Lombard Street and
associated with the Charles Center area. The vacancy rate for the Charles Center properties of the 1960s and 1970s is 22.26%, considerably
higher than the overall market. In addition, the demand for office space, particularly in Charles Center and along Baltimore Street, has not been
as robust as along Pratt Street and outside the CBD in the East (Harbor East, Fells Point, and Canton) and the South (Locust Point).
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Owners of older buildings, or poorly located buildings, will have to invest in more tenant amenities (conference centers, fitness areas, concierge
services, etc.) if they are going to attract and/or retain tenants. In addition, alternative utilization of space for short term occupancies is a trend
outside Baltimore that may be critical to the repositioning and economic viability of these older competitive properties. And finally, there is “the
residential option.”
Multi-family development of condominiums and apartment buildings in Downtown Baltimore since 2000 (both in and out of the CBD) has been
a remarkable and much appreciated surprise inthe City. Previously,the limited residential development ringingthe InnerHarborhas succeeded
“the second time around,” that is after foreclosure and re-positioning. Today, a variety of successful residential projects ringing the Inner
Harbor from Locust Point to Canton are generating greater enthusiasm for residential living in Baltimore City. It is expected that these projects
will reinforce the expanded downtown office market and assist in the absorption of older, Class A office properties. It is also expected that
this wave of residential development will include the adaptive re-use of several Class B and Class C office buildings, thereby assisting in
stabilizing the “low end” of Baltimore’s office market.
Economic Drivers - 2012 and Beyond
Conventional wisdom held that the Baltimore City office market, like the regional economy, will benefit from “Feds, Meds, and Eds,” a reference
to business being generated by the federal government, medical institutions like Hopkins and UMMS, and educational institutions, either for
profit or nonprofit. Time will tell. However, recent developments in the national and regional economy may dictate the need for different drivers
for Baltimore City.
With the exception of major requirements similar to the Social Security Administration’s 538,000 square foot office project in northwest
Baltimore City (a non-downtown location), most of the federal government’s demand for new space will likely be outside Baltimore City near
the National Security Administration (NSA) in Anne Arundel County orthe Aberdeen Proving Ground (APG) in Harford County. And while both
areas will see growth from the government and related defense contractors, it is not expected to be as robust as previously predicted for BRAC.
Another governmental entity, the State of Maryland, needs a significant amount of office space (500,000 SF) to replace aging facilities at State
Center on West Preston Street. However, redevelopment of State Center is mired in the courts with no speedy resolution in sight.
Medical facilities (the “Meds”) are proceeding at a brisk pace throughout the region, with major new patient towers recently completed in the
downtown area by Hopkins, Mercy, and St. Agnes Hospitals. However, with the exception of St. Agnes, there are no new medical office
buildings proposed for the downtown, as opposed to suburban locations.
Educational development continues at a brisk pace, but is more “campus centric” than off campus. In downtown Baltimore, Hopkins Carey
Business School doubled its downtown facilities to more than 80,000 SF in Harbor East. However, an increase in space requirements – from
Hopkins or any other public or private institution – is not predicted for the downtown area.
In short, as it relates to the Baltimore City downtown office market, the conventional wisdom that “Feds, Meds, and Eds” will be the new
economic drivers may not in fact be the case. While this may be the case in the Baltimore – Washington Corridor (Howard and Anne Arundel
Counties) and in Baltimore’s suburbs, it appears that the City will need to generate other economic engines, many of which have not been
identified or do not in fact currently exist.
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And In Conclusion…
Since 1973, the growth and success of Baltimore’s Central Business District and downtown area has, to a great extent, been inextricably linked
to the growth and success of the downtown office building industry. This makes sense - office buildings provide the work place environment
for businesses, and professional service providers supporting those businesses, driving the economy.
Baltimore’s base of businesses, like so many other cities, has changed dramatically over the last 5 decades. When Charles Center commenced
in the early 1960s, all the banks were local, heavy industry was significant (e.g. Bethlehem Steel, GM Automotive, etc.), and manufacturing was
prevalent (e.g. Black & Decker, Crown Cork & Seal, Koppers). Since then, local banking has become scarce (everywhere), much heavy industry
is gone, and manufacturing has been fundamentally sent overseas. Those developments notwithstanding, Baltimore’s economy has survived
and, based on a 2010 study by McKinsey & Associates, actually improved from 18th
to 17th
strongest of all cities in the United States.
Baltimore has been adept over time in redefining its business base. By relying on the recent growth of strong, home-grown entrepreneurial
companies, e.g. Sylvan Learning Systems, Under Armour, Jos. A. Bank, coupled with the growth of local institutions, e.g. T. Rowe Price,
Hopkins, UMMS, McCormick Spice, etc., the city and the region have prospered.
The office building industry is the car in which business moves. Consequently, if business is robust, expanding, and growing, the office building
industry experiences growth. When business slows down and contracts, it will have a similar impact on office buildings.
The Downtown Baltimore Office Industry has come into its own the last 5 decades. While reshaping the look and feel of the downtown area,
it has also served as a catalyst for expanding the downtown, encouraging increased residential development, and making Baltimore City and
the Inner Harbor a tourist destination. This has not been achieved by the private sector working on its own The original Charles Center project,
the infrastructure required for reclaiming the Inner Harbor, and the sports stadia a short walk from the Inner Harbor (Orioles Park at Camden
Yards and M&T Bank Stadium) are all products of the public sector. But the private sector has been good at leveraging these capital projects.
Robert A. Manekin sior, Managing Director & Principal
robert.manekin@colliers.com | direct +1 443 297 9030
Bob Manekin, author of this white paper on An Overview of Downtown Baltimore’s Office Market, is an industry
veteran with 37 years’ experience in tenant representation, general brokerage, development, property management and
consulting. A former attorney, Bob heads Colliers’ Baltimore Law Firm Practice Group and has represented a significant
number of Baltimore law firms. Bob also has extensive experience working for health care organizations (Mercy, Sinai,
St. Agnes) and major companies like CIGNA, FedEx, UPS and First Data. He is currently an adjunct faculty member at
Hopkins Carey Business School and has lectured on real estate topics at MIT, UNC’s Kenan Flagler School of Business,
Maryland Continuing Legal Education (MICPEL), and numerous trade & industry groups.
Colliers International | Baltimore - 100 N. Charles Street, Baltimore, MD 21201 | main +1 443 297 9000
