Office vacancy rate up in Baltimore in 4th quarter 

Posted: 6:44 pm Mon, January 11, 2010
By Robbie Whelan
Daily Record Business Writer

Two new reports on the Baltimore commercial real estate market show that about one-fifth of office space in the city is vacant, a marked increase over last year and a sign that a commercial real estate recovery for the region may still be a ways off.

In addition, average rental rates for commercial space have not adjusted significantly downward to meet low demand for space.

“Like a lot of markets, you haven’t seen the effect of the fact that we’re at or close to the bottom of the market,” said T. Courtenay Jenkins, a senior director with the Baltimore office of Cushman & Wakefield.

Cushman’s fourth-quarter office report pegged Baltimore’s overall vacancy rate in the downtown business district at 17.9 percent and overall office vacancy in the city as a whole at 18.8 percent.

Vacancy numbers in the region as a whole, buoyed by a promising number of lease signings in Harford and Baltimore counties, are slightly lower, at 16.1 percent, according to the report. Harford County, which has seen several major tenants come to the area because of the federal Base Realignment and Closure process, has an overall vacancy rate of just 4.2 percent.

The Cushman report predicts that 2010 will be a transitional year, with rental rates continuing to drop as tenants continue their “flight to quality.”

“The Baltimore office market is continuing to show some signs of rebirth but the overall sense is still one of malaise,” says the report.

“Real estate investors, those that would stand to benefit from the next cycle, it’s time for them to position themselves to start to make acquisitions,” Jenkins said. “There’s a lot of capital on the sidelines waiting for the second shoe to drop in this market.”

Surprisingly, average rental rates in the city have stayed about the same as last quarter, at $25.78 per square foot.

Jenkins said this had to do with the 127,000 square feet of space leased this year at the new Legg Mason building in Harbor East. That building, according to some estimates, commands rents of nearly twice the city average for full-service office rentals, which is in the low $40-range per square foot.

Another report released Monday by Lutherville’s MacKenzie Commercial Real Estate Services presents a slightly more dire picture, with an overall vacancy rate of 21.66 percent in the city’s downtown business district and 20.49 percent of all office space vacant in the city overall.

The MacKenzie report also shows a lower average asking rent of about $20.01 for the city, down $2.37 from the last quarter, suggesting that rents in the city actually are adjusting to attract tenants for vacant space.

Across the region, MacKenzie pegs the overall office vacancy rate at 16.78 percent. That’s up from 15.14 percent last year. The firm’s yearly vacancy comparisons are particularly striking in Baltimore city, with last year’s 13.56 percent vacancy rate rising more than eight points to 21.68 percent in the fourth quarter of 2009.