Baltimore Retail Investment Forecast
Baltimore Metro Area, 2018 Outlook
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Healthy Demand Underpins Improved Operations; Investors Find Opportunities Outside Metro Core

Demand outstrips supply, prompting declining vacancy and rising rent. Thanks to prominent medical research institutions and numerous federal operations, more highly skilled, well-paid professionals are joining the metro, helping lift Baltimore’s median level of income. Retail spending has responded by growing at a higher rate than in recent years. With vacancy in the city of Baltimore below 2 percent, some well-performing retailers are looking farther out to find space. Developers will aid that endeavor by bringing new supply to market in areas outside the core where there are fewer existing properties. The Reisterstown Road Corridor received particular attention last year with the arrival of a Wegmans-anchored power center. This year a new master-planned community around Quarry Lake will add further retail space. Metrowide, most 2018 completions are pre-leased, contributing to a strong level of absorption that exceeds supply, resulting in a drop in vacancy. Constrained conditions in select submarkets has led to localized rent appreciation above the average rate’s subtle uptick.

Proximity to consumer traffic defines return expectations. A rise in demand above the three-year average adds appeal to the retail market. Investors face several options for various returns. Convenience stores and drugstores represent the most popular asset class for longer-term holds thanks to the reliability of their tenants. Shopping centers anchored by well-known grocery stores and big-box operations or those with casual dining also exhibit first-year returns at or below the market average of high-6 percent. Out-of-state buyers in particular favor single-tenant properties that have credit-worthy lessees and can change hands at cap rates below 5 percent. Buyers interested in greater initial yields may consider buildings farther away from major transit lanes. Older, more remote assets, especially multi-tenant buildings, can trade at cap rates between 7 and 9 percent. These properties are favored by local buyers.