Commentary: Market revival-Office market shows signs of heating up

Daily Record, The (Baltimore), Jul 1, 2005 by Mark R. Smith

The continued revival of the office market was the story in the Baltimore area's commercial real estate market during the first quarter of 2005, with leasing and condo sales proving to be significant chapters.

While the office market is gaining steam around the Baltimore area, the song has remained the same with much of the rest of the commercial real estate market throughout Maryland. That is to say the industrial and flex markets have been somewhat uneven, but retail is booming as usual.

Below are the biggest deals of the first quarter, renewals not included, courtesy of Bethesda-based CoStar Group Inc.

OFFICE

Address: 9910 Franklin Square Drive, White Marsh

Square footage: 52,000

Submarket: Baltimore County East

Tenant: The Johns Hopkins University

Tenant representative: Colliers Pinkard

Landlord: Nottingham Properties Inc.

Landlord representative: Nottingham Properties Inc.

Sign date: 1/27/2005

After remaining stubbornly high for some time, the vacancy rate in Baltimore City has dropped to 15 percent, said T. Courtenay Jenkins III, senior vice president with Trammell Crow Co. in Baltimore. This is down from 18 percent vacancy in the fourth quarter of last year.

There is a lot of activity in the central business district and in the city in general. [It is] emerging as the hottest office market in the region, he said.

Jenkins pointed to the redevelopment along the waterfront with 500 E. Pratt St. and Lockwood Place, the 110,000-square-foot retail project that is rising next door. Both are 50 percent leased and could be substantially leased by end of year.

Also, Verizon is downsizing at its 320,000-square-foot building at 100 E. Pratt that is under contract to the Amstar Group. The latter plans to renovate the building and put more than 150,000 square feet back on the market.

At Inner Harbor East, 170,000 square feet of office space is included at 600 Exeter St., which is under construction and due for delivery in late 2006. Further east is Canton Crossing, a 17-story, 500,000-square-foot building with free parking. It is the largest new office project being built in the metro region and is slated to deliver next April. It is already 60 percent leased and will include such tenants as 1st Mariner Bank.

Overall, activity has been brisk, and properties are selling for record prices, Jenkins said. 100 E. Pratt will break a record in excess of $300 per foot. The city has solved a lot of problems during the last five years, and I think more companies are staying in or moving back to downtown and Canton.

The increased activity in the city seems to be working its way north, said Senior Vice President John Hamilton of Corridor RF&S in Baltimore. He is representing two buildings along the Charles Street corridor, at 1030 and 2701. We're trying to figure out why we're seeing so much more activity in the past month. - We have come to the conclusion that the market is rebounding. I have four lease proposals out on 1030 alone.

The suburban markets are looking healthy, too. Scott Wimbrow, senior vice president and principle with MacKenzie Commercial Real Estate Services/Cushman & Wakefield's Columbia office, said the Anne Arundel and Howard county markets are still strong and dominated by federal government and the defense contractors, as are the other jurisdictions around the Beltway, with the economy remaining healthy in this region.

But it's not all about the defense industry. Wimbrow noted strength in the health care and financial services markets as well. But our market is so dominated by technology and intelligence contractors that, at the end of the day, it all seems to reach back to the federal government, he said.

Despite that robust sector, some smaller contractors are concerned that the mounting federal deficit could result in across- the-board cuts at some point.

As for trends, Michelle North, associate with NAI KLNB in Columbia, noted that companies are moving away from increasingly congested Columbia Town Center for the better highway access from locations on Route 100 or Route 95 because users can get similar amenities elsewhere.

And Darrell Nevin, president of The Lease Wright in Columbia, noted the popularity of office condos.

About 600,000 square feet of office condo space is coming on line in Howard County this year alone for as much as $250 per foot, Nevin said. They are also popping up in Baltimore County and Baltimore City, and prices are still rising. A second wave of buyers is trying to capitalize on the opportunity to buy before rates rise and the market levels off.

INDUSTRIAL

Address: 300 Clubhouse Lane, Hunt Valley

Square feet: 179,931

Submarket: Route 83 Corridor North

Landlord: 40 Clubhouse LLC

Landlord representative: Clubhouse Properties of Maryland Inc.

Sign date: 3/17/2005

Getting a handle on the industrial market can be tough. While there are deals being signed, activity does not appear to be swift.

We have seen an increase in substantial leasing activity, finally, said James Lighthizer, principle with Chesapeake Real Estate Group in Glen Burnie. He noted about 225,000 square feet of deals signed in Odenton in Anne Arundel County, with BAX leasing 80,000 square feet at Arundel Crossing 3, Scholastic Books leasing 70,000 square feet at Arundel Crossing 7 and Guest Services with a similarly sized lease at 3.