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The Baltimore metro region’s office market has been buoyed by a surge in the economy, but concern about violence in the city could undermine those gains. (File)

Strong Baltimore market outlook tempered by violence

A strong Baltimore economy is expected to continue to propel the metro area office market, but another violent year could derail economic growth in Charm City.

On Wednesday, Delta Associates released its fourth-quarter appraisal of the metro’s office market along with the region’s economic outlook for 2016. The report found vacancy declined, net absorption increased and modest rent growth throughout last year.

It attributed the office market’s solid year to an improving economy. In the 12-month period ending in October, the economy added 33,500 jobs, which is the highest level for the area since the 1980s.

Education/health and professional/business services were the top two job growth drivers in the last year. Adding jobs in those sectors is a boon to the office market because they provide high-paying jobs that typically drive growth in the office sector.

There are still some lingering issues in the area’s economy. Wage growth and housing prices remained stagnant throughout the year. But the report expects both housing prices and wages to improve in 2016.

JLL’s fourth-quarter report, released on Tuesday, found a continued a strong flight to quality during the past year, which is expected to continue. That firm found vacancy for Class A space in the metro area fell to 10 percent, but Class B office space continues to struggle. The hardest-hit portion of that market segment is in Baltimore’s traditional Central Business District.

“In the Central Business District, Class B vacancy has jumped to 23.0 percent as off-water buildings struggle to backfill tenants who have upgraded to more modern and efficient space,” according to the JLL report.

The cybersecurity sector was a major driver for interest in office space in the metro area, and that’s expected to continue into 2016. Fort Meade, which is home to U.S. Cyber Command, drove strong interest in the office markets in Anne Arundel and Howard counties.

JLL found one of the strongest indicators of this market’s strength is landlords like Corporate Office Properties Trust making significant investments, either overhauling Class B office space in the area or demolishing it to make way for amenities.

Despite the relatively solid outlook for the next year there is a wild card that has analysts concerned. In the aftermath of April’s riots and the following massive spike in homicides this past year, companies reported it was taking longer to fill some positions, which was a drag on hiring.

If more riots were to erupt as a result of verdicts in the cases of the six officers charged with crimes related to the death of 25-year-old Freddie Gray, and homicides in the city continue at a historically high rate, it could have a chilling effect on the city’s economy, dragging down the metro area as a whole.

If violent activity persists into 2016, the city’s economy – and its office market – are likely to suffer,” according to Delta Associates.

Still, there are many positive signs in this submarket: declining vacancy, more firms moving downtown, new space deliveries and conversions of obsolete office buildings to residential use.