MARKETVIEW
Baltimore Office, Q2 2018
Live-work-play communities
spurring suburban submarket
construction growth
Vacancy Rental Rate Net Absorption
14.4% $22.67 FS (88,024) SF
• Leasing volume totaled 581,265 sq. ft. in Q2 2018.
The market continued to experience a significant
number of renewals, with users such as Pepsi-Cola
and CannonDesign renewing for a total of 35,332
sq. ft.
• The appeal of a live-work-play environment
continues to trigger construction in Columbia, White
Marsh, and Towson. Projects in these three
submarkets account for more than 20% of the
Baltimore market’s current development pipeline,
with additional projects expected to break ground in
the next 12-24 months. In June, Greenberg Gibbons
and Caves Valley, moved forward with the much
anticipated construction of the $350 million Towson
Row development. Plans include 1.2 million sq. ft. of
commercial and residential development, including
two hotels and 300 off-campus housing units for
Towson University students. 150,000 sq. ft. of office
space is expected to go vertical in 2019 with
completion scheduled for 2020. The county
estimates that 2,000 full-time jobs and up to $220
million in revenue will be created by the project’s
completion.
• Investment sales volume decreased more than 51%;
with only $270 million worth of assets traded in H1
2018, compared to $562 million in H1 2017.
Private and institutional capital respectively
accounted for 55% and 45% of total activity so far
this year.
Q2 2018 CBRE Research
Leasing Velocity Under Construction Deliveries
581,265 SF 1,136,158 SF 0 SF
Indicates change from previous quarter.
Fundamentals in the Baltimore office market
weakened year-over-year, demonstrated by an
increase in vacancy and a decrease in both net
absorption and leasing activity. Gross leasing
volume totaled 581,265 sq. ft. in Q2 2018, and more
than 1.0 million sq. ft. for the first half of the year, a
decrease of more than 10% from the same period in
2017 and down from the previous five-year half-year
average of 1.5 million sq. ft. The market continued
to experience pockets of tightness with activity
shifting between submarkets. The Army Corps of
Engineers and Magellan Healthcare each
consolidated their footprints for a combined 190,000
sq. ft. in the CBD and Columbia submarkets.
Performance in downtown Baltimore was primarily
driven by activity in prime assets. T. Rowe Price
expanded into 31,492 sq. ft. at 100 East Pratt Street
(CBD) and Johns Hopkins leased 26,898 sq. ft. at 750
East Pratt Street (CBD). Overall, prime space in
Baltimore City East posted a vacancy rate of 2.9%,
430 basis points (bps) lower than the Class A rate of
7.2%. In comparison, prime space in the CBD
currently registers at 6.2% vacant, compared to the
Class A rate of 17.8%.
Live-work-play environments continue to drive
development in the suburban submarkets. At
completion, Greenleigh at Crossroads (Baltimore
County East), Towson Row (Towson), Metro Center
(Reisterstown Road Corridor), and the Merriweather
District (Columbia) are estimated to bring more
than 2.0 MSF of new office product to the market.
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Figure 1: Historical Trends

SF (000's) Vacancy (%)
1,800 20
1,600 18
1,400 16
1,200 14
12
1,000
10
800
8
600 6
400 4
200 2
(0) 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD 2018

Deliveries (L) Net Absorption (L) Vacancy (R)

Source: CBRE Research, Q2 2018.

VACANCY & DEMAND RENTS & CONCESSIONS

The Baltimore office market recorded 88,024 sq. ft.
of negative absorption in Q2 driven by vacancies
and consolidations from users including the Army
Corps of Engineers, Magellan Healthcare, and the
Institute of Genome Sciences, in the downtown
and suburban submarkets. As a result, the overall
vacancy rate increased 10 bps in Q2 to 14.4%.
The overall asking rate increased nominally by
$0.05 over the quarter to $22.67 per sq. ft. per
annum on a full service basis. Class A rates also
decreased to $24.22 per sq. ft. Typical concessions
include tenant improvement allowances ranging
from $10 to $25 per sq. ft. and abatements
averaging four months free for a five-year lease.

Many vacancies and consolidations were off-set by
move-ins and expansions from small to mid-sized
users. The largest include:
• Crown Castle leased 39,243 sq. ft. at 10980
Grantchester Way (Columbia).
• FedData leased 20,371 sq. ft. at 7055 Samuel
Morse Drive (Columbia).
• Carefirst expanded into 13,214 sq. ft. at 1501
South Clinton Street (Baltimore City East).
Figure 2: Year-to-Date Leasing Activity
3% 3%
5%
15%
8%
8% 13%
10%
8%
Source: CBRE Research, Q2 2018.
Despite meaningful changes to net absorption and
vacancy in the past decade, asking rates and
concessions have been relatively limited
(averaging $22.00 per sq. ft. since 2007), a unique
characteristic to the Baltimore market. This trend
is expected to continue, with changes in rent only
anticipated in certain micro-markets experiencing
high demand and limited supply.
CONSTRUCTION ACTIVITY
Construction activity increased over the quarter as
St. John Properties (SJP) broke ground on a
100,000 sq. ft. speculative building at 6211
Greenleigh Avenue (Baltimore County East), slated
to deliver mid-year 2019. Part of the $100 million,
live-work-play concept known as Greenleigh at
Government Crossroads. At completion, SJP expects to deliver
Business Services 500,000 sq. ft. of Class A office product to the
Technology
submarket. The project is expected to bring
Other
Financial Services 10,000 jobs to the area.
Aerospace & Defense
Education
Legal In total, there is approximately 1.1 million sq. ft.
of office space under construction in the market,
which is 39.1% preleased to users such as M&T
Bank and McCormick & Company.

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 MARKETVIEW BALTIMORE OFFICE
Figure 3: Year-over-year Employment Growth (YOY Annual Rate)
All Employment
Subtotal Office Using
Wholesale, Transportation & Utilities
Construction & Goods-Producing
Retail and Entertainment
Eds and Meds
Other Office-Using
Information, Science & Tech
Government
-1% 0% 1% 2%
Short Term Growth Long Term Growth
(Apr. 2017 - Apr. 2018) (Apr. 2009 - Apr. 2018)
Source: Bureau of Labor Statistics, Q2 2018.
ECONOMY
Total nonfarm employment in the Baltimore
metro region expanded by 20,900 jobs (1.5%) YOY
in April 2018, bringing total employment in the
region to 1,413,800. Office-using sectors
accounted for 7,800 new jobs (1.3%) YOY.
Overall employment growth was led by
educational and health services, which added
6,800 jobs (2.5%), and other office using service
jobs, which added 5,800 jobs (2.4%).
The long-run economy is shifting slightly away
from government and from construction and
goods producing jobs in manufacturing. Office-
using employment constitutes 44% of all jobs in
the region, and has remained steady. Growth has
been in service sector, education and health care,
and the retail and entertainment industries.
Additionally, logistics industries grew 2.1% in the
past year, and are one of the main drivers of
economic growth in the region in the long-run,
especially as major logistics-oriented employment
in projects like Trade Point Atlantic continue to
expand.
Q2 2018 CBRE Research
Figure 4: Investment Sales
Transaction Volume ($, millions)
1,000
800
600
400
200
0
2013 2014 2015 2016 2017 YTD 2018
3% Source: Real Capital Analytics, Q2 2018.
INVESTMENT SALES
Investment sales activity decreased over the
quarter, with approximately $90 million worth of
assets traded in Q2, with institutional and private
capital driving activity.
The most notable transactions of the quarter were:
• In a joint venture, Ten Capital Management
and Pembroke Hobson LLC purchased from
Guardian Realty, Dulaney Center at 901
Dulaney Valley Road (Towson/Timonium) for
$67.3 million, or approximately $213 per sq. ft.
The asset was 90% leased at the time of sale.
• 7321 Parkway Drive (BWI) sold for $10.8
million, or approximately $272 per sq. ft.
Gaulin Properties LLC purchased the 39,822 sq.
ft. building from FD Stonewater. The asset was
100% leased at the time of sale.
• The 38,292 sq. ft. building at 9740 Patuxent
Woods Drive (Columbia) sold for $5.0 million,
or $131 per sq. ft. American Wood Fibers
purchased the property from Greenfield
Partners. The asset was 84% leased at the time
of sale.
Activity is expected to hold steady throughout the
rest of the year with approximately $265 million
worth of office product currently on the market,
compared to $200 million during the same quarter
last year.
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 MARKETVIEW BALTIMORE OFFICE

Figure 5: Key Indicators

Submarket Inventory Overall Q2 Net YTD 2018 Net Class A FS Overall FS Under
(Sq. Ft.) Vacancy Absorption Absorption Asking Rent Asking Rent Construction
Rate (%) (Sq. Ft.) (Sq. Ft.) ($/Sq. Ft.) ($/Sq. Ft.) (Sq. Ft.)
Annapolis 2,409,359 8.3 11,059 15,281 28.88 28.41 128,950
Baltimore City East 5,383,049 6.0 19,933 47,309 28.61 27.89 76,612
Baltimore City North 1,642,279 6.2 7,351 (25,276) 27.58 24.80 -
Baltimore City West 1,903,622 30.8 (72,113) (104,060) 19.27 18.49 135,000
Baltimore County East 1,281,702 9.9 2,265 (3) 23.22 20.67 100,000
BWI 8,683,554 16.1 38,143 3,075 31.31 26.94 43,000
CBD 11,700,258 17.9 (141,727) (54,333) 24.20 22.72 227,040
Columbia 12,958,161
Source: CBRE Research, Q1 2015. 11.1 64,553 (18,832) 25.37 24.15 105,556
Ellicott City 487,181 4.2 2,104 15,413 23.55 23.76 -
Harford County 2,016,440 34.5 (1,544) 42,986 24.83 24.10 -
Hunt Valley 4,175,372 11.8 (11,103) (27,401) 22.98 20.07 320,000
Midtown/Mt. Vernon 600,206 9.0 411 3,879 22.50 18.37 -
Reisterstown Rd Corridor 4,485,462 19.2 (428) (35,707) 21.55 20.77 -
Route 2/3 1,044,813 21.4 16,968 9,053 22.45 22.10 -
Towson/Timonium 6,356,103 11.4 (20,416) (12,291) 22.63 20.65 -
West Side 2,560,787 15.8 (6,210) 2,405 18.72 17.67 -
Overall Market 67,688,348 14.4 (88,024) (138,502) 24.22 22.67 1,136,158
Source: CBRE Research, Q2 2018.
Figure 6: Select Top Q2 2018 Lease Transactions
Tenant Industry Address Submarket Type Sq. Ft.
Confidential Aerospace & Defense 6841 Benjamin Franklin Drive Columbia Renewal 140,407
Allstate Insurance Insurance 6514 Meadowridge Road Columbia New 66,000
Conduent Business Services 1000 Stewart Avenue BWI Renewal 38,000
City of Baltimore Government 7 East Redwood Street CBD New 37,837
NextGen Health Care 11350 McCormick Road Hunt Valley Renewal 33,988
T Rowe Price Financial Services 100 East Pratt Street CBD Expansion 31,942
Confidential Aerospace & Defense 1304 Concourse Drive BWI Expansion 26,961
Howard County DFRS Government 6095 Marshalee Drive Columbia New 25,000
CallRevu Technology 10 North Park Avenue Hunt Valley New 21,092
Source: CBRE Research, Q2 2017.
Maryland Innovation & Security Non-profits 7000 Columbia Gateway Drive Columbia New 17,475
Source: CBRE Research, Q2 2018.

Figure 7: Select Top Q2 2018 Sale Transactions

Sale Price
Address Submarket ($, millions) Sq. Ft. Price/Sq. Ft. ($)
901 Dulaney Valley Road Towson/Timonium 67.3 316,348 213
7321 Parkway Drive BWI 10.8 39,822 272
9740 Patuxent Woods Drive Columbia 5.0 38,292 131

Source: CBRE Research, Q2 2018.

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CONTACTS

Jennifer Nowakowski Michael Rodriguez

Team Lead Leader, Market Research & Insights
+1 410 951 8433 +1 202 783 8200
jen.nowakowski@cbre.com michael.rodriguez10@cbre.com

CBRE Baltimore
100 East Pratt Street, Suite 1700
Baltimore, MD 21202

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