Baltimore's Tight Industrial Market Won't See Boom From New E-Commerce Shipping, Experts Say

One of the world's largest e-commerce shipping companies is ramping up its service to the Port of Baltimore, but local commercial real estate professionals tempered expectations that it will substantially boost demand for space in the area's already tight industrial real estate market.     

While increased e-commerce shipping to the area demonstrates existing market demand, local developers and brokers said, they expressed doubts about its ability to in-and-of-itself lure new tenants to the market.  

"I would say it's hard to have much more demand then we already have. We don't have supply for the demand we have, for the most part," Chesapeake Real Estate Group principal Jim Lighthizer said.

In early February, ZIM Shipping Lines, one of the world's 10 largest ocean carrier firms, said it was increasing the frequency of ships arriving at the Port of Baltimore serving its Baltimore Express e-commerce line.

State and port officials hailed the boost in e-commerce shipping as a boon to Baltimore-area logistics firms, which make up a substantial portion of warehouse and distribution users in the region. 

Acting Maryland Commerce Secretary Kevin A. Anderson predicted earlier this month that increased e-commerce shipping to Baltimore will spark new demand for warehousing and distribution space in an already strong market. 

"Maryland’s strategic location and proximity to more than one-third of the U.S. population within an overnight drive has helped spur significant growth in e-commerce around our state,” Anderson said in a statement. 

While brokers and developers agreed the increased shipping is a positive development, they downplayed its significance in terms of luring new industrial tenants to Baltimore.

Allan Riorda, president of Lee & Associates Chesapeake Region, agreed the increase in shipping bodes well for the existing market. But he said it won't create a surge in demand, especially for "monster" facilities often associated with e-commerce warehouse and distribution.

E-commerce demand for industrial buildings in the Baltimore and Washington corridor, he said, is driven by users looking for buildings of 50K SF or less. It's rare to see transactions in the area exceeding 200K SF, he said, primarily because of the region's land constraints. 

"A 1M SF cross dock building ... it wouldn't be in demand in this market," Riorda said. 

Demand for assets of that size is primarily concentrated north and west of Baltimore, Riorda said. Markets like Pennsylvania's Lehigh Valley, he said, attract larger e-commerce facilities for two primary reasons. 

The first reason is the availability of land where developers can build the massive warehousing and distribution centers that e-commerce firms need. The second reason, he said, is those markets still deliver easy access to densely populated areas ranging from Boston to Charlotte, North Carolina. 

"In the Baltimore area we really have more last-mile facilities, more than the big bombers, so to speak," Riorda said.

ZIM Shipping Lines' decision to increase e-commerce shipping to the Port of Baltimore comes on the heels of what CBRE's latest market report described as "simultaneously an anxious and reassuring year" in the local industrial market.  

The Baltimore area industrial market's relatively sluggish performance in 2022 is attributable to headwinds that hampered the sector nationwide, according to CBRE. Those obstacles included long material delays, labor challenges and concerns about an impending recession. 

While even in a relatively down period, CBRE found more than 2.8M SF of industrial product in the Baltimore market delivered in the fourth quarter. That raised the total industrial space delivered in the area last year to nearly 6M SF.

Gross leasing slowed to 1.3M SF in the Baltimore market at the end of 2022, below the five-year quarterly average of 3.5M SF. Yet, CBRE's researchers contend slackened leasing "was expected due to the staggeringly low amount of available space in the market." 

Local industrial real estate brokers and developers shared CBRE's optimism about the market's future but said increased e-commerce shipping isn't particularly high on those firm's checklist when considering real estate deals.     

"The users for e-commerce space typically put their real estate deal first, and then they jump into a port deal. It doesn't happen the other way around," Lighthizer said.  

E-commerce tenants, he said, move to a market primarily because opening a facility in that area improves efficiency.

"Usually the e-commerce guys are coming here because of roofs, the stores and the people that are here," Lighthizer said.    

While the increased e-commerce shipping isn't expected to open the floodgates for new tenants in the Baltimore market, there are infrastructure projects under way, such as the expansion of the Howard Street tunnel, with potential to substantially bolster local industrial demand.

Work is underway to expand the tunnel, originally built in 1895, to allow CSX to move double-stacked railroad cars through Baltimore. That removes a bottleneck that significantly slows cargo from moving through the Port of Baltimore.  

"I've been laser-focused on completion of the tunnel to allow double stack, and I know that is going to change demand," Lighthizer said.