Baltimore-DC Area Commercial Real Estate Market Struggling to Find Positives According to MacKenzie’s Q1 Market Outlook
On-again and off-again tariffs discussion, consumer pessimism about direction of economy, inflation worries, and general uncertainty have combined to delay real estate decisions across all asset classes
The commercial real estate market in the greater Baltimore-Washington, D.C. area has struggled to gain its footing during the first three months of 2025, with owners, investors and end-users frantically searching to find positives, according to MacKenzie Commercial Real Estate Services’1st Quarter 2025 Local Outlook, compiled with information and commentary from Anirban Basu, CEO of Sage Policy Group. A confluence of factors led by the on-again and off-again tariffs discussion, consumer pessimism about the direct of the U.S. economy, inflation worries, and general uncertainty have combined to delay major real estate decisions across all asset classes. Bright spots can be found in the confidence among small business owners, relatively healthy homes sales, a lower-than-expected rate of inflation to start the year, and the 3.4 percent unemployment rate. The full report can be viewed here: https://shorturl.at/erpDP
Nearly 900,000 square feet of commercial office space leased in Q1
The overall vacancy rate for commercial office space in the greater Baltimore metropolitan region held mainly steady at 14.6 percent, on the strength of nearly 900,000 square feet of leasing activity and positive absorption of more than 125,000 square feet of space. The vacancy rate in Baltimore City Center rose more than three points to 31.5 percent due to the relocation of T. Rowe Price to Harbor Point, which pumped 450,000 square feet of vacant space into the market. Limited new construction has helped prevent market oversupply, which demand for high-quality office space remains high. The largest office transaction in the quarter was the $26 million sale of 40 Wight Avenue in Cockeysville.
Chain store closures contribute to 220,000 square feet of negative absorption in retail sector
Since the beginning of the year, nearly 150 lease agreements have been executed, comprising more than 600,000 square feet of retail space, but that activity could not offset the closing of chain stores such as Big Lots and Party City, which triggered a new wave of junior box vacancies – typically ranging from 10,000 to 15,000 square feet of space. The issue has been compounded by the continued closure of Dollar General and Dollar Tree locations. The current environment presents the unique opportunity for well-capitalized tenants to secure quality locations while facing less competition. Leasing activity has been paced by fast-casual and sit-down restaurants, as well as car wash operators, children’s learning centers and national self-storage brands. The overall vacancy rate ended the quarter at 6.13 percent.
Industrial sector remains bright spot with positive net absorption and 7.43 percent vacancy rate
The warehouse/industrial asset class continues to chug along on a positive trajectory, highlighted by stable rent rates, an overall positive net absorption throughout the region and a 7.43 percent vacancy rate. All submarkets recorded an increase in rental rates with an average of $11.76 per square foot. Nearly 800,000 square feet of industrial space has been delivered to start the year, with the slowdown of activity based on tariff uncertainty and elevated interest rates and construction costs. Diageo concluded the sale of approximately 63 acres of land in Halethorpe to MRP Industrial and Clarion Partners, who plan to construct two Class ‘A” warehouse/distribution buildings comprising 485,000 square feet of space. Sales activity to start the year was also respectable with an average sales price of nearly $193 per square foot.
“Commercial real estate is extremely cyclical and we have extreme confidence in the long-term prospects of the greater Baltimore-Washington, D.C. real estate market based on the strength and diversity of the business sector, the highly-educated workforce, and the region’s prime location in the Mid-Atlantic region,” explained Scott Wimbrow, President and Principal, MacKenzie Commercial Real Estate Services. “Our company continues to win new leasing and property management contracts, we have added several brokers to our growing team, and we are always on the lookout for emerging talent. As always, any downturn in the market creates opportunities for savvy owners and investors. This process starts with generating insights from an outside perspective to better evaluate the situation.”
MacKenzie Commercial Real Estate Services is the real estate brokerage arm of The MacKenzie Companies, which operates six full-service divisions addressing all real estate asset classes including MacKenzie Management Company, MacKenzie Contracting Company, MacKenzie Capital and MacKenzie Investment Group. The company provides customized real estate solutions for institutional owners, investors, private companies and individuals. For additional information, visit www.mackenziecommercial.com
