Shrinking Office Tenants Bring Baltimore's Vacancy Rate To Another Record High: CBRE
Baltimore office vacancy set a new high this spring, topping the previous mark set at the start of the year, according to research by CBRE.
The office market suffered 168K SF of negative net absorption between the start of April and the end of June. Vacancy over those three months hit 18.6%, topping the previous high of 18.2% recorded during the first quarter.
CBRE attributed the second quarter's occupancy losses to tenants relocating and downsizing, citing examples such as law firms DLA Piper and Semmes Bowen & Semmes.
DLA Piper departed 153K SF at 6225 Smith Ave. in Baltimore County for nearly 35K SF at 650 South Exeter St. in the city's Harbor East neighborhood. Semmes Bowen & Semmes decamped from 25 South Charles St. for nearly 33K SF at 250 West Pratt St., a roughly 40% footprint decrease.
Terri Harrington, the founder of Harrington Commercial Real Estate, said she suspects the reluctance of employees to return to the office spurred firms' decisions to move and reduce their footprints.
"Based on the downsizing, it looks like employers are not convinced their employees are coming back to a five-day workweek in the office anytime soon," Harrington said.
As recently as the end of last year, Baltimore's office occupancy appeared on the rebound after the market experienced back-to-back quarters of positive absorption during the final six months of 2022, according to CBRE.
However, those boosts likely failed to reflect market realities. At the time, researchers warned that Maryland moving several large government agencies to offices in downtown Baltimore last year distorted the absorption rate.
Baltimore's sublease availability also remained elevated at 1.7M SF in the second quarter, a 114% increase from pre-pandemic levels. Exelon's decision to list 103K SF for sublease at 1310 Point St. exacerbated the sublease glut, according to CBRE, which attributed the decision to fewer employees coming to the office to work.
Yet CBRE's researchers found positives amid the steady drumbeat of negative data points. Gross leasing activity increased in the second quarter, indicating new market activity.
While leasing remained 9% below pre-pandemic levels, it was 27% higher than the average leasing activity posted since the start of the pandemic. During the second quarter, 26 companies signed leases of at least 10K SF. Seventeen did so in the first quarter.
The increase in activity likely comes from companies that previously delayed going to market by extending leases, Harrington said. Many of those firms have found themselves forced to "make some decisions and get out there and look around," she said.
"Enough time has passed post-pandemic for decision-makers to finally come to terms with how much space they need and how their office is going to look," she said.
