An Update on the Baltimore Office Market – November 2022

As the percentage of remote work rises around the country and in Baltimore, the office market continues to soften. Vacancies are rising in the Baltimore metropolitan statistical area (MSA) and are now at the highest levels since 2014. With roughly 17.5 million square feet of vacant space, rates in Baltimore sit at 11.5%, just below the national average of 12.5%.

The uncertainty of firms' decision to occupy space further remains the prevailing question. And as these debates persist, many companies continue to put their space on the market, increasing the total available sublease space across the country.

Baltimore’s total sublease space has increased yearly since the pandemic's start. Total sublease space has increased by more than 15% in the past year and 80% since the pandemic's beginning.

Source: CoStar

Due to the lack of need for office space, total absorption (move-ins minus move-outs) has turned negative for the past three years. And the future of expected layoffs from a potential recession does not paint a rosy picture for office demand moving forward.

Source: CoStar

Despite rising vacancies and lessened demand, rental rates have not seen much impact and have increased slightly since 2020. However, while rent levels remain unchanged, an increase in landlord concessions persists. Overall rent growth will likely remain limited in the near term, especially considering the market's large quantities of sublet space, typically offered at a discount to direct space.

Due to the fundamental shift in how people work, office-to-residential conversions have been prevalent in the Baltimore market. This is exemplified in the acquisition of the historic 1 Calvert Plaza, purchased earlier this year by Chasen Companies. The former office building is anticipated to be converted into 173 luxury apartments.

Another example is the 15-story Fidelity & Deposit Building at 210 N. Charles Street, purchased in early 2022, is expected to bring 240 residential units in the coming years. And development opportunities could likely continue to rise, especially in downtown areas, where there are more than 4 million square feet of vacancy (18% vacancy rate), according to CoStar.

Source: CoStar

The weaker economic outlook is not a welcome sign for the office market. Many investors have continued to shift their focus to more stable assets, like multifamily and industrial, in these uncertain times.

To discuss any of our current investment opportunities or for a complimentary opinion of value on your apartment property, call or email Justin Verner: (410)-960-3962 | jverner@harborstoneadvisors.com