Baltimore's Cheap Rents Are Ideal For Retail Experimentation

Baltimore’s challenges have been well-documented, and often dominate the perception of the city from outsiders. But like with any struggling area, its value creates opportunities.

Baltimore’s vacancy in retail has been declining in the past few quarters and rents have been rising, but not to the level where anything fundamental has changed about its market.

“It’s affordable, and there are certainly opportunities, but I don’t think we’re underwriting massive rent growth,” Jabber Five Real Estate Group principal Brad Shapiro said at Bisnow’s Baltimore Restaurant & Retail Summit April 26.

Among the topics discussed at the event were the exploding popularity of food halls, Baltimore’s reputation for crime and the civil rights issues underneath it and the moving target of experiential retail. But the city’s value was a persistent undercurrent.

Baltimore's population has been dropping for years, and its persistent reputation for high crime has been a deterrent for many national retailers. Companies that feel the need to be in the Washington, D.C., New York and even Philadelphia markets don't feel a similar pull with Baltimore.

“Part of the [crime] problem is perception, but that’s easily the biggest problem for national tenants,' Hekemian & Co. Senior Vice President Chris Bell said. "Looking at a Sweetgreen, it has almost 30 locations in the D.C. metro area, but Baltimore only has one store. Why? It’s the perception of Baltimore as much as anything.”

The ensuing lack of demand has caused lower rents than in those more high-profile cities, but bizarrely, that has been more of a deterrent for some retailers than an attraction: It adds a second layer of suspicion on top of the wariness about crime. Bell said that a prominent, Philly-based chef passed on a space at Hekemian's Rotunda development for this reason.

“We have people saying they’ll talk to us later when the rents are higher, so that’s confusing,” Bell said.

Baltimore's complex fabric of neighborhoods is a difficult picture for out-of-towners to wrap their heads around, Urban Axes founder Stu Jones said. The BYOB ax-throwing arena concept Jones founded in Philadelphia recently opened its second location in Baltimore's Highlandtown neighborhood.

“We had to look at why those companies weren’t in Baltimore, to figure out what’s wrong," Jones said. "We wondered what we weren’t seeing, what the catch was.”

Although Urban Axes required a rezoned industrial property for its space, it is emblematic of the kind of retailer without a massive balance sheet that looks for value in transitioning neighborhoods and cities like Baltimore. Incidentally, it also is the kind of unique, experiential retail concept that gets people talking on social media and is emblematic of the changing face of the retail market.

Though low rents don't guarantee success — Baltimore's high restaurant turnover is proof of that — they do allow landlords to take shots on tenants that turn into great success stories. 28 Walker Development repurposed some leftover space in its McHenry Row development and signed Diamondback Brewing Co. at bottom-dollar rent, but its success has been a boon on a level beyond the bottom line.

"We don’t collect a ton of rent from them, but they had a festival there with 3,000 people that touched our project when they might not have otherwise," 28 Walker Director of Development Scott Slosson said. "So even though we’re not getting much rent from them, it’s improving the experience of our place.” 

Adjacent to Diamondback Brewing is a commissary called Share Kitchen that serves as a coworking-style incubator for food entrepreneurs to test out concepts on cheap, short-term leases. Some become "ghost kitchens" that can operate through delivery services like UberEats without serving a single sit-down diner. Korean eatery Haenyo is such a business that operates out of Share Kitchen, with occasional pop-up events around town.

“Over time, these pop-up kitchens will allow us to not have as many restaurant closures over the next 10 years, because people can experiment and figure out what works,” The Elephant co-founder Mallory Staley said, noting that she has had to rework the Elephant multiple times to stay hip.

Signing local retailers is doubly important in Baltimore because, for all the national chains that don't have interest in the city, there are plenty of residents who are just as likely to eschew them in favor of a local business. Baltimore residents, defiantly proud of their "gritty" city, support their own.

“From my perspective, Baltimore is far less transient than other cities," Bell said. "People have been here longer, and that’s a huge part of the authenticity — there are real neighborhoods with histories, and the new restaurants aren’t growing out of new buildings."

In such a cultural moment that values being "Instagrammable," authenticity is just as highly prized as it is tough to find. Bell cited D.C. neighborhoods like NoMa as examples of developers trying to create new neighborhoods from whole cloth that have to manufacture something like authenticity.

“There’s a lot of grit in the city, and that’s a cool thing in this bright and shiny world,” Bell said.

As Baltimore draws and fosters more cool retail tenants like Urban Axes and Share Kitchen, it only adds to that reputation. If that reputation begins to gain ground on the crime narrative, then Baltimore's retail rents have a lot of room to grow.

“We’ve had folks from out of town go to the Rotunda, and they love the location, but they look at the rents, and they’re heading out to Charlotte or Austin and they say, ‘Probably in a few more years,’” Bell said. “There’s a huge opportunity for Baltimore retail because of all that. There’s a ton of runway.”