Downtown Baltimore lost workers and visitors amid pandemic but hopes for rebound

The coronavirus pandemic sent downtown Baltimore’s economy into a tailspin, resulting in sharp drops in employment, visitors, office occupancy and retail sales last year, a report released Tuesday morning shows.

But city and business leaders are hopeful the city can rebound, and they see bright spots such as continued demand for housing and stable population, the Downtown Partnership of Baltimore said in its annual State of Downtown Baltimore Report.

Downtown’s population remained nearly unchanged at 42,336, compared with 42,706 in 2019.

The downtown business advocacy group planned to release the report during a virtual event Tuesday morning.

“The economy will rebound quickly when things reopen,” the Downtown Partnership said in an executive summary. “People still want what Downtown Baltimore offers — restaurants, entertainment, architecture, and not having to rely on a car. If anything, being cooped up at home accelerated that demand.”

The onset of the pandemic in March 2020 interrupted what had been a healthy economy in the city, with strong employment growth and demand for housing, development investment totaling $200 million and a strong pipeline of new projects.

By the end of last year, the report said, total employment downtown fell to 117,970 from 124,785 in 2019. The drop had followed a gain in 2019 from 119,690 in 2018. That number measures how many workers that downtown employers say they have now and doesn’t account for those working remotely.

With workplaces shut down, office vacancies jumped to 23.3%, up from 17.75% in 2019. Most employers’ plans about when and how to return employees fully back to work still remain in flux and depend on factors such as increasing vaccination rates, the group said.

The report covers everything within a one-mile radius of Pratt and Light streets. It’s an area that takes up less than 4% of the city’s landmass but brings in 16% of all income tax revenue, 17% of real estate tax revenue and the bulk of the city’s hotel tax and parking tax revenues.

While some museums and attractions opened with limited capacity, performing arts venues remained shuttered last year. Hotels laid off staff and some stayed closed until late summer or fall. Others became temporary shelters for people in quarantine or without housing.

Hotel tax revenue, a source of municipal funding, was down about $7 million for the year, Visit Baltimore had said in its annual report. Some 424 new hotel rooms were under construction last year, with another 739 planned through 2025.

“Exactly how and when visitors will return is uncertain,” the Downtown Partnership report said. “Baltimore’s location and popularity as a drive-up market should make it rebound quickly with day-trippers and hotel guests who are still reluctant to fly or take Amtrak.”

Retailers and restaurateurs were among the hardest hit businesses, though many survived by adding internet sales, curbside pick-up and outdoor seating. Downtown multi-tenant retail properties had an average occupancy rate of 81.8%, the report said, largely because of the struggles and receivership at Harborplace and empty space at Lockwood Place at 600 E. Pratt St. The retail occupancy rate improved, however, to 94.85%, when averaged across all multi-tenant properties and individual storefronts. Several new restaurants opened.

Despite the challenges, momentum continued in the housing market, the report found.

Leasing slowed down early in the year, likely due to the lack of offices hiring and limited in-person classes at medical and graduate schools. But by the end of the year, rents in many apartment builders were rebounding, vacancies were decreasing and more renters were locking in long-term leases.

Five apartment projects opened, adding just over 540 new units to the market, including the largest, the 400-unit Avalon on President Street in Little Italy.

With the added inventory, the apartment occupancy rate decreased slightly to 93% compared with 93.5% in 2019. The city’s fastest growing residential Census tract is Charles Center, in downtown’s traditional business district, where about half the residents are minorities. Average apartment rents ranged from $1,253 for a studio to $2,771 for a three-bedroom unit.

The city is expected to benefit from $670 million in federal stimulus funding from the American Rescue Plan Act. And $50 million has been earmarked by the state to help Maryland agencies move from State Center into the central business district.

As offices begin to re-open, typically in phases as part of hybrid workplace that retains telework, younger workers, including Millennials and Gen Z, are expected to lead the way back to the office, the Downtown Partnership said.

“Look for them to be the first ones back at their desks, dining out, at the gym, and supporting entertainment venues,” the report said. “While it may not feel like it given COVID-related telework, the information age is actually expanding the need for office workforce, and many commercial real estate brokers expect leasing to increase by mid-2021 as the world reopens.”

Richard Florida, an author and urbanologist, has calculated that 45% of Baltimore’s workers are included in the creative class that is expected to drive post-pandemic job growth, according to the report. Florida believes Baltimore is among “innovation metros,” such as Atlanta, Denver, Austin, Texas, and Pittsburgh, that are expected to attract top talent and capital investment.

Despite an increase in office vacancies, rents for Class A office space increased to an average $24-$30 per square foot last year from $23-$27 per square foot. In Class B space, year-end rents increased as well, to $19-$24 per square foot from $17-$21 per square foot.

The Downtown Partnership expects short-term leases and leases for smaller footprints to become more common and help fill in some of the larger vacancies.

Many leases announced last year were renewals, such as the State Attorney General’s office at 200 St. Paul Street, or relocations within downtown, such as T. Rowe Price’s plans to move from the business district to Harbor Point.

This story will be updated.