What to Expect From Baltimore’s Office Market
- Sep 03, 2019
The Baltimore office market is well-positioned for growth, largely due to the rapid rise of health care and cybersecurity, and the impact of transformative projects such as Port Covington. Demand for prime office space is still strong, which should ensure a fast absorption of the upcoming deliveries.
Class A developments, such as Merritt Cos.’ 20-story 3401 Boston, are springing up not far from the central business district. Scott Dorsey, the company’s CEO, provides insights into the metro’s ballooning office sector and explains why we will see more renovated buildings in Baltimore’s workspace landscape.
How would you describe Baltimore’s office sector today and how do you see it going forward?
Dorsey: It’s a mature market and new developments are on the horizon, which will make the office sector more competitive. There has always been a high demand for office users in the Interstate 83 corridor and the main challenge continues to be the scarcity of ground-up developments. That’s why we anticipate seeing an increasing trend to redevelop office properties and elevate spaces to today’s standards.
For instance, Merritt Cos. recently converted a former research and development building into a Class A office in Owings Mills, Md., at 10065 Red Run Blvd. We gutted a 63,000-square-foot, two-story building and redesigned it to hold modern office spaces with open floor plans. We also have plans to develop Timonium III, a 90,000-square-foot Class A office at 2026 Greenspring Drive. Moving forward, landlords will have to get creative in repositioning their office buildings and as vacancy gets tighter, you should expect to see rental rates increase.
Tell us more about on Baltimore’s best submarkets for office investment and what attracts tenants to them.
Dorsey: Howard County, Columbia and Ellicott City, Md., have been great submarkets due to their proximity to Baltimore City and Washington, D.C. There is a well-educated workforce and a variety of business sectors, including health care, education, technology and government contractors. This keeps the market robust and rents are typically 50 percent lower than the ones in the Washington, D.C. market. A strong public school system and residential communities make the area a great place to develop and conduct business.
In the I-83 corridor, we typically post a +90 percent occupancy rate. Towson, Timonium, Hunt Valley and Owings Mills are the most popular submarkets. These areas are located near major highways, including the Baltimore Beltway and wealthy residential communities. Popular industries include financial services and insurance companies. Our redevelopment in Owings Mills, Md., comes at a good time because the area is experiencing decreasing vacancies and positive absorption for the first time in years.
What are the challenges and risks investors and developers face in Baltimore during this economic cycle? How can they overcome them?
Dorsey: We have been developing industrial and office projects in the Baltimore region since 1967 and have gone through many economic cycles. Rather than try to time the market as long-term holders of real estate assets, we know that the best strategy is to create high-quality projects in the best locations, as these invariably outperform the overall market in a downturn.
Moreover, you also need to have capital available to take advantage of opportunities to acquire land or buildings for redevelopment at favorable prices and always be conservative in debt strategy, in order to mitigate the effects of higher vacancies and lower rental rates in tougher markets.
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How do you identify the right areas for development?
Dorsey: Location is key. Other factors include price, accessibility, county and government support, utilities and existing infrastructure.
Tell us more about 3401 Boston, the largest office project in your company’s development pipeline. What makes this project stand out?
Dorsey: The building will feature 10 stories of floor-to-ceiling glass office, with average floorplates of 20,000 square feet and 10 levels of garage parking, with a total of 550 spaces. 3401 Boston will include a penthouse terrace, a community lounge and 9,000 square feet of street-level retail. Located in the thriving Canton neighborhood of downtown Baltimore, this building will be within walking distance to Merritt Clubs Canton and sought-after shopping and dining amenities. Since the development will be positioned outside of the Central Business District, but within minutes of I-95, office users will have the unique opportunity to avoid downtown gridlock.
What are your company’s short- and long-term plans?
Dorsey: There is no difference between our short- and long-term plans. Since our company was founded in 1967 by Leroy Merritt, we have been focused on taking care of our customers, employees and partners while seeking growth opportunities.