Relocating 3,300 State Center employees vital to downtown revitalization
Baltimore’s business community should be hopeful, but also aware that the revitalization and transformation of the district may start — but cannot end — with relocating state employees.
Gov. Larry Hogan’s decision to relocate 3,300 state employees from State Center to downtown Baltimore is a critical stepping stone in breathing new life into the city’s Central Business District. It constitutes a win-win for the state’s taxpayers (lower occupancy costs), the City of Baltimore (increased property taxes and economic development) and everyone working in the area. Baltimore’s business community should be hopeful, but also aware that the revitalization and transformation of the district may start — but cannot end — with relocating state employees.
Office vacancies in the Central Business District are at 22%, significantly higher than during stronger economic times. Such a high vacancy rate is typically symptomatic of a hurting economy, but that’s not what we are experiencing. The reason is apparent: changes in workplace strategy concerning the amount of office space needed and how it is used. It will take more than relocating 3,300 state employees downtown to address the situation, which has caused an even higher vacancy rate — 27% — north of Lombard Street.
The issue isn’t unique to Baltimore. Virtually all tenants — corporate or local, business or professional services — are rethinking how to best use office space. Everyone is “right-sizing” to adjust to new workplace trends. Law firms have moved to single-size offices. Several financial services firms are subleasing space, and banks are giving back full floors (a large bank moved out of 2 Hopkins Plaza to 1 E. Pratt and, less than three years later, put a floor on the sublet market). This trend has caused the Central Business District to experience negative absorption of more than 500,000 square feet, equal to two office buildings, since January 2016.
Relocating employees from State Center is, therefore, a necessary piece of the district's comeback story. However, other steps must be taken:
Landlords need to retool properties to accommodate short-term leasing.
Business owners today are demanding more leasing choices with greater flexibility. While there is plenty of space for long-term leasing, and coworking is mushrooming, there are few if any pre-configured, available suites leasing for one year in the Central Business District. Unlike other markets where landlords have seen the benefit of such offices, which are leased more like apartments — what you see is what you get for a one-year lease — that hasn’t happened in Baltimore.
We see this as the way several Central Business District office buildings can survive foreclosure. Real estate is becoming much more service-oriented, and landlords must meet users’ needs beyond just four walls and a desk. Short-term leases should no longer be viewed as a last resort, but rather an opportunity to convert existing space into options aligned with today’s sharing economy.
Perform a smart, concerted recruitment effort.
Baltimore City has a competitive, critical mass in three areas: financial services, nonprofits and healthcare. We propose creating three task forces comprised of the leaders from those sectors that would be tasked with identifying and soliciting business from their vendors, professional service firms and strategic partners located outside of Baltimore. It would be powerful for the heads of the major health systems already based in Baltimore to solicit those companies to consider a Baltimore location.
The same would be true of the nonprofit (Abell, Casey, France-Merrick, Catholic Relief, Lutheran Aid, etc.) and financial services (T. Rowe Price, Stifel, Brown Advisory, etc.) sectors. Those firms that are already in the city would be great proponents of why a Baltimore location works for them, and how it could work for others.
As a result of dramatic changes in workplace strategies, there is too much vacant space in downtown Baltimore, particularly the Central Business District. This excess space reduces property taxes, adversely impacts retailing and undermines the fabric of downtown. The governor's decision to relocate employees from State Center to downtown is a great first step in addressing this crisis. However, it will take creative property owners and a concerted economic development effort to successfully address the problem.
Robert Manekin and Antony Gross are senior vice presidents with JLL.