The coronavirus pandemic sent downtown Baltimore’s economy into a tailspin, resulting in sharp drops in employment, visitors, office occupancy and retail sales last year, a report released Tuesday morning shows.
But city and business leaders are hopeful the city can rebound, and they see bright spots such as continued demand for housing and a stable population, the Downtown Partnership of Baltimore said in its annual State of Downtown Baltimore Report. Downtown’s population remained nearly unchanged at 42,336, compared with 42,706 in 2019.
The downtown business advocacy group released the report during a virtual event Tuesday morning.
Shelonda Stokes, president of the Downtown Partnership, said Baltimore’s business leaders, residents and officials have an opportunity to work together to create a new vision for downtown in the wake of the health and economic crisis.
“Baltimore has its location. We have affordability. We have assets,” she said. “We can be the next, fill in the blank. The greatest city you think there is, Baltimore can be.”
Baltimore Mayor Brandon Scott said he’s working with Downtown Partnership to help downtown “not just come back, but come back stronger and better.”
Much of that has to do with public safety, a top concern among business leaders and his own administration, the mayor said.
“We know that remote workers won’t come back to the office, diners and tourists won’t make the trip, and investment will go elsewhere if people worry that downtown and our neighborhoods in downtown aren’t safe,” he said.
The onset of the pandemic in March 2020 derailed what had been a healthy economy in the city, with strong employment growth and demand for housing, development investment totaling $200 million and a strong pipeline of new projects.
By the end of last year, the report said, total employment downtown fell to 117,970 from 124,785 in 2019. Last year’s drop followed a gain from 119,690 in 2018. The decline reflects the temporary loss of service-sector jobs in hotels, restaurants and construction, the group said. The overall number includes how many people downtown businesses say they employ now and doesn’t account for those working remotely.
With workplaces shut down, office vacancies jumped to 23.3%, up from 17.75% in 2019. Most employers’ plans about when and how to return employees fully back to work still remain in flux and depend on factors such as increasing vaccination rates, the group said.
The report covers everything within a mile radius of Pratt and Light streets. It’s an area that takes up less than 4% of the city’s landmass but brings in 16% of all income tax revenue, 17% of real estate tax revenue, and the bulk of the city’s hotel tax and parking tax revenues.
While some museums and attractions opened with limited capacity, performing arts venues remained shuttered last year. Hotels laid off staff and some stayed closed until late summer or fall. Others became temporary shelters for people in quarantine or without housing.
“Exactly how and when visitors will return is uncertain,” the Downtown Partnership report said. “Baltimore’s location and popularity as a drive-up market should make it rebound quickly with day-trippers and hotel guests who are still reluctant to fly or take Amtrak.”
Retailers and restaurateurs were among the hardest-hit businesses, though many survived by adding internet sales, curbside pickup and outdoor seating. Downtown multi-tenant retail properties had an average occupancy rate of 81.8%, the report said, largely because of the struggles and receivership at Harborplace and empty space at Lockwood Place at 600 E. Pratt St. The retail occupancy rate improved, however, to 94.85%, when averaged across all multi-tenant properties and individual storefronts. Several new restaurants opened.
Despite the challenges, momentum continued in the housing market, the report found.
While leasing slowed down early in the year, likely due to the lack of offices hiring and limited in-person classes at medical and graduate schools, by the end of the year, rents in many apartment buildings were rebounding, vacancies were decreasing and more renters were locking in long-term leases.
Five apartment projects opened, adding just over 540 new units to the market, including the largest, the 400-unit Avalon on President Street in Little Italy.
With the added inventory, the apartment occupancy rate decreased slightly to 93% compared with 93.5% in 2019. Average apartment rents ranged from $1,253 for a studio to $2,771 for a three-bedroom unit. The city’s fastest-growing residential census tract is Charles Center, in downtown’s traditional business district, where about half the residents are minorities.
As offices begin to reopen, typically in phases as part of hybrid workplaces that retain telework, younger workers, including millennials and Generation Z, are expected to lead the way back to the office, the Downtown Partnership said.
“Look for them to be the first ones back at their desks, dining out, at the gym, and supporting entertainment venues,” the report said. “While it may not feel like it given COVID-related telework, the information age is actually expanding the need for office workforce, and many commercial real estate brokers expect leasing to increase by mid-2021 as the world reopens.”
Richard Florida, an author and urbanologist, has calculated that 45% of Baltimore’s workers are part of a creative class that is expected to drive post-pandemic job growth, according to the report. Florida believes Baltimore is among “innovation metros,” such as Atlanta, Denver, Austin, Texas, and Pittsburgh, that are expected to attract top talent and capital investment.
The most successful cities, post-pandemic, will undergo what Florida called a “great urban reset,” he said during Tuesday’s virtual event.
That could mean a greater mix of housing and commercial uses and more outdoor space dedicated for eating, gathering and working on laptops, such as a Downtown Partnership initiative to clean up and transform alleys into inviting public spaces.
Workers will want to alternate between working remotely and in offices, and commercial space will be redesigned for new more collaborative purposes to entice workers back, he said.
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“I’m convinced that ... we have a chance now to make our central business districts and our downtowns even better, more vibrant, more innovative, more creative, more affordable,” Florida said. “The downtown itself has become the new office.”
While young people and students left Baltimore and other cities amid pandemic shutdowns, Florida said he believes those moves were temporary.
“Young people are flooding back to cities,” Florida said. “Expect to see a rush back to downtown offices.
“Then I think we’re going to see quite quickly that walkable and bikeable areas close to the core ... are going to become even more desirable,” he said.
Despite an increase in office vacancies in Baltimore’s downtown, rents for Class A office space increased to an average $24-$30 per square foot last year from $23-$27 per square foot. In Class B space, year-end rents increased as well, to $19-$24 per square foot from $17-$21 per square foot.
The Downtown Partnership expects short-term leases and leases for smaller footprints to become more common and help fill in some of the larger vacancies.
Many leases announced last year were renewals, such as the State Attorney General’s office at 200 St. Paul St., or relocations within downtown, such as T. Rowe Price’s plans to move from the business district to Harbor Point.