Suburban Baltimore Retail Surges While Downtown Storefronts Remain Vacant
The retail sector has suffered from massive disruptions in recent years, from the rise of online shopping to the pandemic shutting down stores, but some segments of the market have proven surprisingly resilient.
In the suburbs of Baltimore, demand for grocery-anchored shopping centers has come roaring back from the pandemic. Brokers say they now have a tough time finding available space for tenants in these shopping centers, and a lack of new construction is making it a scarce market.
But that retail comeback isn't occurring in downtown Baltimore, where the sector is still struggling with high vacancy and concerns over safety.
The suburban retail resurgence, according to developers, brokers and investors, stems from retailers and builders figuring out how to rightsize offerings, make better use of existing space, and in some cases opening locations in buildings they never previously would have occupied.
The types of tenants driving this retail rejuvenation, according to experts in the sector, are personal services, medical centers and fast-casual food tenants.
Of those tenants, fast-casual eateries are the most active in the market, MacKenzie Commercial Real Estate principal Tom Fidler said. Those eateries represented more than 70% of transactions in the last 12 months, he said.
These eateries are generally taking less space than traditional restaurants, Fidler said. Typical full-service restaurants want about 8K SF, he said, but fast-casual eateries find their sweet spot around 5K SF. Additionally, he said about 80% of potential restaurant tenants are looking for spaces with a drive-thru.
28 Walker Development has also experienced “big demand” for drive-thrus in recent months, said Scott Slosson, the firm's chief operating officer. The firm’s ability to deliver those spaces helped land one of the nation’s first Shake Shack’s with a drive-thru at Canton Crossing. He said the location on Boston Street is slated to open within the next few weeks.
"On the retail front, right now, we have more inquiries than we have space available," Slosson said.
Demand for drive-thru space has cooled in the last three to four months, Fidler said. Restaurant tenants will forgo a drive-thru if a location has high visibility, good branding opportunities and convenient parking, he said.
Pandemic-driven changes to customers' shopping habits also have retailers rethinking spaces that a few years ago struggled to capture tenant demand.
Tenant interest in suburban strip shopping centers has skyrocketed over the last two years in large part because of their convenience. These centers, unlike mixed-use urban projects in fashion prior to the pandemic, are easy for customers to access by car and find parking.
“Covid has taught us consumerism is now driven by convenience,” Fidler said.
Baltimore-based Continental Realty Corp., a commercial and multifamily real estate investment firm, is especially bullish on the potential of suburban shopping centers.
The firm set personal records in the last 12 months for acquisitions, and opportunistic retail purchases made up a substantial portion of those deals, according to CRC Chief Operating Officer David Donato.
Donato said his company sees opportunity amid the economy's current “choppiness,” and it plans to buy more suburban strip retail centers.
He said the firm's bullishness stems from CRC’s experience in the 2008 financial crisis. At a time some firms were fleeing suburban shopping centers, he said CRC was landing some of its best deals.
“While some people are panicking about quote-unquote retail, we feel like they're running away from some of the wrong things. We are finding that we're getting really good buys on really steady stuff,” Donato said. “These outdoor strips have performed very, very, very well.”
Older, grocery-anchored shopping centers are in such demand in the area that brokers and investors say lack of supply may be the biggest issue they face.
While there have been a few relatively recent deliveries, such as the overhaul of the former Owings Mills Mall, mixed-use projects have dominated new retail development.
“Selectively, [new strip shopping center construction] happens, but it's at the lowest point, probably, in my career for new deliveries of that product,” Donato said.
Fidler said brokers are finding it hard to locate available retail space in suburban strip shopping centers.
Developers aren’t building new grocery-anchored shopping centers locally, he said, because of a dearth of available entitled land, the cost of construction and stagnant rents.
“We are down to very few and far between quality opportunities,” Fidler said. “We’re running out of good retail space.”
These tightening retail market conditions aren't occurring everywhere in the region. Urban retail, outside a few city communities like Harbor East and Hampden, continues to struggle.
In many neighborhoods, such as the traditional Central Business District, the pandemic accelerated the decline of retail and it hasn’t relented.
The neighborhood north of Pratt Street, which is heavily dependent on office users to support retailers, has hemorrhaged businesses including stalwarts like Starbucks and 7-Eleven that remained viable elsewhere during the pandemic.
Mike Gioioso, a retail broker who recently moved to Idaho, but still practices in Baltimore, said the city’s retail recession dates back to the riots in 2015 following Freddie Gray’s death in police custody. Concerns about safety linger, he said, and continue to haunt retailers and property owners downtown.
“I feel legit depressed when I look at [former colleagues' city] listings,” Gioioso said.
There are pockets in the city, Fidler said, that are producing “growth and positive momentum.” Conversely, issues like crime and unemployment, he said, still deter retailers from moving into wide swaths of the city.
“Things are not well in Baltimore City,” he said.
Arsh Mirmiran, of Caves Valley Partners, is currently in the process of repositioning the Village of Cross Keys office and retail development in North Baltimore.
The shopping center — developed by the late Jim Rouse’s eponymous company in 1965 — is within city limits, but its development style and setting near Roland Park is suburban in nature.
Caves Valley Partners purchased Cross Keys for $27M from Ashkenazy Acquisitions Corp. in July 2020, after about two years of negotiations the pandemic nearly derailed the deal. Since taking over as Cross Keys owner, Mirmiran said, retail leasing is slower than anticipated.
“It’s been tough to get deals across the finish line, but it's not from a lack of interest,” Mirmiran said.
Slower retail leasing, Mirmiran said, is the result of ongoing renovations at the shopping center, which are expected to wrap up in about six weeks. Many retailers are hesitant to commit to opening until the overhaul is complete, he said, but once that work is finished he expects a plethora of retailers signing leases.
“I think we have a couple of big splashes coming,” Mirmiran said. “It’s not like it’s crickets.”