Office vacancies in the Baltimore area climbed to the highest level in at least 15 years in 2009, when demand for space fell as businesses scaled back or put expansions on hold. And industry insiders warn that commercial foreclosures will likely rise in the coming months.

About one-fifth of the city's office space is vacant. The vacancy rate rose to 18.8 percent in the fourth quarter, a sharp increase from 12 percent at the end of 2008 - and higher than during the last recession in 2001, according to Cushman & Wakefield, a top commercial real estate firm in Baltimore. It's the highest rate since 1994, the first year the statistics were kept.

But the area's commercial real estate market has weathered this recession better than many cities and is well-positioned for a recovery as early as this year, real estate experts say.

In a sign of momentum, city officials and Baltimore developer The Cordish Cos. said Tuesday they plan to start demolition for a new development in the "superblock," a swath of the west side of downtown targeted for revitalization but stalled for years by property disputes, litigation and the recession.

"This is the year to get on the offensive; there is a lot of opportunity out there," said T. Courtenay Jenkins, a senior director of office transaction services for Cushman & Wakefield.

A commercial downturn creates opportunities, and office tenants are looking for fire-sale deals on rent. At the same time, job growth in defense, health care and education as well as the influx of jobs from the federal military base restructuring known as BRAC are expected to fuel an eventual recovery.

Weak demand has put pressure on commercial rents. Rates in the city fell to $25.78 per square foot, from $28.18 per square foot at the end of 2008.

The larger metro area tracked by the firm, which includes Baltimore, Anne Arundel, Howard and Harford counties as well as the city, had a slightly lower vacancy rate of 16.1 percent, though that's still an increase, from 13.9 percent over 2008. Rental rates in the metro area have remained flat at $25.01 per square foot.

Office vacancies increased in downtown Baltimore in part because of companies consolidating or moving within the city.

One of the largest vacancies was created when money manager Legg Mason Inc. moved from its headquarters at 100 Light St. to a new tower in the thriving Harbor East neighborhood. The 24-story Legg Mason Tower, which opened in the fall, will be more than 80 percent occupied with pending leases and is able to charge gross rents of $40 per square foot, a record for Baltimore, Jenkins said.

The gaping holes left in the central business district have been a key concern of the Downtown Partnership of Baltimore.

"We need to direct resources to the heart of downtown," said J. Kirby Fowler, president of the Downtown Partnership. "We have some vacancy issues and don't want to create thriving districts outside of downtown at the expense of the historic district."

Cushman & Wakefield unveiled on Tuesday its outlook for 2010, which it sees as a transitional year in a recovery rather than a turning point.

The firm's executives said the market still has a long way to go. Leasing and occupation rates are expected to remain tepid this year, while construction of new office buildings won't pick up again until late in the year, the firm said.

And vacancy rates reveal only part of the story. Large blocks of leased offices are actually vacant and available to sublet and so are not included in the vacancy numbers.

Demand for industrial and warehouse space has cooled as well, and the metro area's industrial vacancy rate of 12.5 percent is expected to drop this year along with rental rates.

A bright spot has been the impact of base restructuring in Harford County and in Anne Arundel County near Baltimore-Washington International Thurgood Marshall Airport. St. John Properties and Corporate Office Properties Trust have broken ground on new office projects near Aberdeen Proving Ground to meet the demand from Army contractors around the base. And Anne Arundel County's office market is expected to thrive over the next two years as jobs come to Fort Meade.

"The BRAC effect in 2010 will show itself," said David W. Baird, senior managing director for Cushman & Wakefield.

Tuesday's announcement about demolition to make way for the superblock signaled the project is moving forward. The project plan includes new housing, shops, parking and possibly office space on a collection of blighted blocks around the Lexington Street pedestrian mall, the heart of the city's old retail district.

Jenkins said he has been encouraged by companies that have thrived or rebounded amid the recession, among them Legg Mason, Under Armour Inc. and Constellation Energy Group.

"Tenants in general are starting to come back into the marketplace," he said. They "can negotiate attractive deals."