An official with the union representing workers at the hotel, which opened in 1967, said the Sheraton has struggled to compete with new properties as tourism and business shifted toward the Inner Harbor and the Convention Center. Roxie Herbekian, president of Unite Here Local 7, also cited a lack of investment in the dated property by the owners, who may convert the remaining tower to a limited-service hotel.

Neither the Blackstone Group, which owns the hotel, nor its manager, Interstate Hotels & Resorts, responded to requests for comment.

Even if a market's overall metrics aren't fantastic, hoteliers can see opportunity when new development —such as Harbor East — changes the dynamic within a city, said Tim Southard, an Atlanta-based senior vice president in commercial real estate firm JLL's hotels and hospitality group.

"They look at that and say maybe overall [revenue per available room] in Baltimore is weak, but I can put a top-branded hotel in this location and I can outperform the market," said Southard, adding that developers are optimists. "It's potentially capturing unaccommodated demand because there's not a hotel in that specific location with that specific brand, and it's potentially stealing market share from other hotels that are either in inferior locations, or [are] inferior brands, or are a functionally obsolete product."

Ken Finkelstein president of Hyatt Place Harbor East developer Englewood LLC, said he chose the location carefully and considers Baltimore a "solid market," but it likely isn't strong enough to support a lot of new projects.

"It can absorb a certain amount of growth, but people shouldn't get too carried away," he said. "You've got to kind of pick your spots."

The 750-room Baltimore Marriott Waterfront, which opened in Harbor East in 2001, has benefited from its location. The hotel had occupancy rates "in the 70s" last year, largely from group bookings, said Julie Codus, director of sales and marketing.

Even so, she said, the tight market meant it couldn't rest on its laurels: the hotel spent $5 million this winter to overhaul its bar and restaurant, now named Apropoe's in homage to Edgar Allan Poe. Other hotels, such as the Hyatt Regency, also are renovating.

"With the new inventory and the new hotels and new restaurants, you really have to keep up with what's going on," Codus said. "We really needed to step up our game."

Baltimore's relatively cheap real estate also makes it an appealing place for new investment.

Rubell Hotels, a Miami-based company owned by a family of art collectors, scooped up the 440-room Lord Baltimore hotel — a Radisson on the verge of closure — for $10 million last year. Modus Hotels relaunched a made-over Brookshire Suites in February, after buying the 97-room property at a 2012 bankruptcy auction for $7.85 million.

"It's a question of buying in at the right price, doing the right renovation," said Mera Rubell, a partner in the family business. "We go where the opportunity is invisible, because it goes without saying when the opportunity looks invisible, it's going to cost a lot less."

Visit Baltimore's Noonan said he expects a strong tourism season in 2014, with the opening of the casino this summer increasing demand for rooms.

Rubell, whose property is in the more traditional downtown, said she is also bullish on Baltimore, given its world-class universities, top sports teams, art institutions and location on the well-trafficked Northeast corridor. She said she expects the activity in Harbor East to spill over soon enough.

"I don't know if there are too many rooms," she said. "I think we need more tourists."