New Developments Put Pressure
On Baltimore's Downtown

Baltimore's traditional downtown office market and famed Inner Harbor views are facing stiff competition from new developments in some of the city's previously gritty neighborhoods.

In some ways, downtown's challenge is a product of Baltimore's success. Developers are expected to add about 2.1 million square feet of office space to the Baltimore-area market this year. The region has partly benefited from the city's location 40 miles northeast of Washington, one of the country's most expensive office markets. While this year's figure would be down from last year's 4.5 million square feet, the new supply helped make Baltimore one of only 17 major office markets out of 54 nationwide to see vacancies rise in the fourth quarter, according to Property & Portfolio Research Inc., a Boston-based real-estate research firm.

In addition to the surge of new supply, some high-profile downtown tenants are pulling up stakes. Legg Mason Inc., the global asset-management firm, says it will move its headquarters in 2009 from downtown to a mixed-use complex to be built in Baltimore's Harbor East area. The project, slated to include a Four Seasons Hotel, is in an area on the harbor just southeast of downtown.

Health-insurer CareFirst BlueCross BlueShield plans this year to move its downtown Baltimore office and workers from another Maryland location into a new 17-story office tower in Canton, another area on the city's waterfront. Meanwhile, Forest City Enterprises Inc. and Baltimore-based Presidential Partners are redeveloping 31 acres near the Johns Hopkins Medical Institute in an area of East Baltimore that has long struggled with poverty and vacant housing.

Opinions vary on whether the new developments will help or hurt the viability of the city's existing core. The increased supply is likely to boost citywide office vacancies for competitive buildings built or redeveloped after 1961 to as high as 18% over the next few years from about 15.8% now, says Robert Manekin, senior vice president of Staubach Co., which represents tenants. Unless new companies move into Baltimore, some landlords in the traditional downtown market anchored by Pratt Street may have a tougher time raising rents, he says.

Baltimore boosters say the complexion of the city's downtown is evolving to become a more mixed-use environment, thanks to investments in hotels, residential developments and retail. They also say the push into new areas of the city is a sign of downtown's success, and will ultimately make the whole city stronger. "If downtown was not thriving, these other neighborhoods would not be happening," says Kirby Fowler, president of the Downtown Partnership of Baltimore Inc.

The downtown partnership and several city agencies are seeking to spruce up downtown. A design team led by Baltimore-based Ayers Saint Gross and Olin Partnership of Philadelphia was selected this month, and has suggested such changes as adding more retail. The group will work on ways to transform Pratt Street into a more inviting city gateway similar to such other boulevards as Chicago's Michigan Avenue.

The economic outlook holds promise but is not robust. Growth in health-care, education and tourism sectors helped to push employment levels up 0.7% in January from a year earlier, even as the area continued to lose manufacturing jobs, according to the Bureau of Labor Statistics and Moody's Economy.com.

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