For the fifth straight year, the Baltimore industrial market ended the year with a positive net absorption, with improvements continuing in both rental rate growth and overall fundamentals. While not overly robust compared to other areas of the country, such as Ontario, Calif., Atlanta, New Jersey and Central Pennsylvania, the Baltimore market absorbed almost 3 million square feet of industrial space in 2015. This sustained growth trend is attributed to a steady, albeit choppy, stream of demand, sustained levels of new construction activity and falling availability and vacancy markers.
Looking at the overall conditions of the market, several factors contribute to the improving fundamentals, the most significant of which is the ongoing, high demand for Class A industrial property, which continues to outpace available supply.
The Baltimore market is located in the heart of the I-95 Corridor and can access 34 percent of the U.S. population within a single day’s drive. Additionally, given its location within the Washington/Baltimore metropolis, major retailers have selected Baltimore as a logical location for e-commerce and omni-channel fulfillment centers to distribute to homes. These centers will allow retailers same-day access to the 9 million people in the Baltimore-Washington region.
Bill Pellington, CBRE Baltimore
On average, those residing in this metro area are highly educated, therefore, more likely to have superfluous income to spend on the goods being transported from the industrial warehouses. On the flip side, the Baltimore market has always presented barriers to entry based upon its smaller average property size (170 million square feet total) and the land-constrained nature of the market. This contributed to a modest amount of new construction deliveries of quality industrial space to support the commerce demands.
Baltimore’s unemployment decreased to pre-recession levels in 2015 as existing tenants experienced organic growth. Companies such as Sephora USA, Pier 1 Imports, Starbucks and numerous local companies expanded their industrial footprint in 2015. As such, tenants actively looking for more space saw rents increase by 3 percent from 2014 levels. Vacancy rates ended the year at 8.8 percent, also a pre-recession level. These improving fundamentals have stimulated increased levels of new construction.
Prudential/Chesapeake Real Estate Group delivered more than 500,000 square feet of speculative space in Baltimore County East and ended the year by leasing 280,000 square feet to RPM Logistics. This submarket has little bulk availability and a thin development pipeline, which should lead to increased rent growth. There are several examples throughout the market where tenants that cannot find the quality space they want will build it, especially in the suburban markets.
In December 2015, USAA finished construction of a 571,000-square-foot speculative warehouse in Harford County in Maryland. Both Maines Paper (123,000 square feet) and Natural Animal Nutrition (120,000 square feet) signed long-term lease deals in Harford County to end the year.
The Port of Baltimore has completed the required infrastructure improvements to compete for post-Panama Canal expansion maritime activity. The port was ranked one the fastest growing in the U.S. and increased tonnage by 14 percent in 2015. Contributing to this was local retailer Under Amour’s decision to ship products from China through Baltimore for the first time in eight years, along with the increased importing of automobiles, farm equipment and commodities to this market.
Our outlook for 2016 remains optimistic as we have reasonable levels of inventory, a qualified and educated workforce and a continuing steady stream of tenant demand.
— By Bill Pellington, Senior Vice President of Industrial Properties, CBRE Baltimore. This article originally appeared in the February 2016 issue of Southeast Real Estate Business.