The greater Baltimore metropolitan region achieved positive absorption of more than 6 million square feet of warehouse and industrial space in 2017, smashing the previous record by several million square feet and triggering yet another wave of speculative development activity.
While on the surface there seems to be no end in sight to this unprecedented level of activity as we cross the midway point of 2018, there does exist several warning signs that are worth monitoring. But, who wants to dwell on anything remotely negative, when experiencing a seemingly end-less supply of 600,000-square-foot requirements?
A Major Industrial Market
The Baltimore-Washington, D.C. region is considered the fourth largest MSA in the country with more than 10 million people in the Combined Statistical Area. Several major seaports are within close proximity, approximately one-third of all consumers residing in the United States can be accessed within a one-day truck drive and developable land is still avail-able, although an increasing number of projects involve the demolition of unusable product to make way for the modern variety.
Bill Pellington, CBRE
Local fundamentals mirror conditions found in “white-hot” sections of the country, including the Inland Empire in Southern California, Northern New Jersey and sections in Pennsylvania where Interstates 81 and 78 intersect. That is, retailers cannot gain access fast enough to large-scale warehouse buildings situated near major population centers to support the same-day or next-day delivery expectations of the American consumer.
Developments Underway
Over the past several years, major corporations including Amazon, Fe-dEx, FILA, Sephora Americas, Pier 1 Imports and Under Armour have entered the marketplace with significant leases, and the momentum continues to build.
Offering more than 3,100 acres in Eastern Baltimore County, TradePoint Atlantic has arguably been the most significant benefactor of this recent activity, and with its ability to handle nearly any-sized distribution requirement, it has landed an 855,000-square-foot Amazon fulfillment center and a 1.3 million-square-foot Under Armour distribution center among its major tenants. There is significant political support, both on the county and state level, for this project, which is close to Baltimore City and the Port of Baltimore.
Duke Realty’s Chesapeake Commerce Center, a 177-acre industrial campus built on the former General Motors plant, has also attracted Amazon, among others, and Chesapeake Real Estate Group’s Port 95 Industrial Park (positioned just across the street from Chesapeake Commerce Center) will contain more than 1 million square feet of industrial and warehouse product on the former Sun Products manufacturing facility. Johns Hop-kins Health System has leased 165,000 square feet of space at this project.
Moving north of the city and into the suburbs finds Eastgate, a nearly 2.3 million-square-foot industrial park being developed by MRP Industrial in Harford County. Principio Business Park, a project of Stewart Properties in Cecil County, has signed Amazon to a 1 million-square-foot distribution center. Chesapeake Real Estate Group’s site in Anne Arundel County south of the city called Brandon Woods III is another project that soon will be making a name for itself.
The success of these projects is fueling the current and future development pipeline. We expect a number of new projects within the next 18 to 24 months to come out of the ground that will mirror these developments in both size and scope.
All of the regional industrial development companies, along with major national REITs, are working as fast as they can to get land entitled and bring projects out of the ground. All of this activity is being driven by the tremendous liquidity in the capital markets, coupled with the insatiable demand for stabilized industrial product by institutional owners.
Needs Still Exist
There are a few areas of caution and concern in the market. Experiencing 600,000-square-foot requirements is tremendous, but the region currently lacks the 75,000- to 100,000-square-foot users that maintain a steady and consistent flow of deals.
While projects with larger footprints are becoming quickly filled, there still exists a number of projects with smaller spaces that remain unleased. This issue is causing a bifurcation that can pull a market into a situation that can be described as a “tale of two cities.”
A healthy market has to rectify that problem, and this activity has been spotty for the past two years. This market needs four to six consecutive quarters of regular demand.
When do the good times end? At this point, there are no train head-lights in the tunnel. Upcoming recessionary periods are foreshadowed by lease concessions, business failures, above-market tenant improvement packages and irresponsible or aggressive underwriting tactics.
Industrial professionals in Baltimore hope to enjoy at least a couple more years of current activity levels.
— By Bill Pellington, Senior Vice President, CBRE. This article originally appeared in the July 2018 issue of Southeast Real Estate Business.