Real estate experts offered a gloomy view of the market for some of the office space in the core of downtown, telling the Baltimore Development Corp. Thursday it is becoming harder for owners of offices along the Baltimore and Charles Street corridors to find tenants.
Overall vacancy rates are at about 17.8 percent, down from the 2010 peak of 20.8 percent, according to Jones Lang LaSalle, which presented to the BDC at its monthly meeting. Along the Pratt Street corridor, where many of the premium properties are located, vacancy hit a five-year low of 14.9, according to the presentation.
But along Charles and Baltimore streets, vacancy rates are at about 25 percent. On Charles Street, it took an average of 70 months to fill empty space in 2013, up from 53 months in 2009, according to JLL. On Baltimore Street the average months on market increased from 26 month to 52 months in the same period.
"This is what we call in the tenant-rep side the reality slide," JLL senior vice president Michael Singer said. "The fundamentals of the Baltimore market is still, space stays on the market a long time."
Even in hotter submarkets, it takes time to find tenants. Class A space on Pratt Street took an average of 22 months to lease in 2013, down from 32 months in 2012 but up from 12 months in 2009.
While employment has grown, leasing has not kept pace, as employers locate more employees in less space, Singer said. Senior vice president Tony Gross said the vacancy along Baltimore and Charles streets has been driven by a flight to quality, as tenants in buildings farther from the water "trade up."
Along Pratt Street, vacancy is at 8.7 percent and expected to drop below 8 percent this year. Vacancy in Harbor East, where the rents are the most expensive in the city, is at 13.5 percent, down from 25 percent three years ago, Singer said.
Other parts of the city, such as Fells Point, Federal Hill and Canton, have less space and vacancy rates below 5 percent. Those neighborhoods have gained traction as employers look for offices that are accessible by walking or bike, Singer said.
Among the tenants considering a trade-up is the BDC itself, which is reviewing options as its lease at 36 S. Charles Street nears expiration.
M & T Bank, which currently occupied about 210,000 square feet at 25 S. Charles, is also looking at options in preparation for a 2016 lease expiration. The bank has about 500 employees at its Charles Street location and another 400 employees in a 167,000-square-foot space in Montgomery Park, where the lease is also set to expire in 2016, according to David Gillece, regional managing principal at Cassidy Turley's Baltimore office, who is working with the bank.
Augie Chiasera, M & T's regional president and a BDC board member, said the company has not decided whether it wants to move. It remains committed to the city, he said.