Buoyed by its proximity to Washington, D.C., and the resulting presence of multiple government installations — as well being the East Coast’s farthest inland sea port — Baltimore enjoys a marginal insulation from the global economic slowdown. The Social Security Administration, the Health Care Financing Administration, the National Security Agency, Ft. Meade and Aberdeen Proving Ground are all federal government outfits in the area that employ Marylanders at well above average salaries. These agencies require significant private contractor support which, in turn, supplies even more well paying jobs.
Baltimore, however, is not immune to the credit crunch. At approximately 190 million square feet of space, Baltimore’s industrial market has seen some recovery at the end of the second quarter. Leasing is up half a percent from last quarter, settling at an overall vacancy rate of 10 percent. With asking rates hovering just shy of the $5 triple-net mark, developers have sharpened their pencils a bit after sitting on recently-delivered product in a market that was flooded with new construction for most of 2008. Asking rates were previously based on construction costs and projections that were developed during the boom times of 2006 and 2007. The tenant has become king, with multiple opportunities to upgrade his space at competitive rates with aggressive terms.
Notable transactions this quarter include Price Modern, which leased 92,000 square feet in a 40-year-old building in Baltimore that ProLogis had recently acquired and redeveloped. Head USA renewed just more than 100,000 square feet at Swan Creek Drive in a modern 28-foot clear height warehouse at the northern tip of the Baltimore-Washington Corridor. Additionally, Graham Packaging has stepped up for 160,000 square feet at the former Fila facility adjacent to the Port of Baltimore.
Well-financed users seeking to purchase buildings remain on the sidelines, patiently waiting for the market to hit what they perceive to be the bottom. Developers have not enjoyed the same anticipation and are beginning to cut their losses.
It is not all doom and gloom for developers. First Industrial Realty Trust recently sold a manufacturing facility to an existing tenant, System Source, for just less than $100 per square foot, or roughly $7 million, in the Hunt Valley area.
There is plenty of new and second-generation space to fill. First Industrial has 300,000 square feet in a 2-year-old, never-occupied building in eastern Baltimore County. Within close proximity, RREEF has more than 300,000 square feet of second-generation space available in two projects. Multiple projects both north and south of Baltimore’s tunnels sit only partially developed because of a lack of both tenants and available financing for shell construction and tenant improvement work.
H&H Rock has undertaken a 600,000-square-foot warehouse development on the east side of Baltimore with tremendous visibility from Interstate 95. One 82,000-square-foot building has already delivered and is 50 percent leased.
The west side of town has become Baltimore West Express with FedEx, Service Express and Bakery Express all taking delivery of space within earshot of each other during the past year. FedEx and Service Express are the only companies operating at the 50-acre, potential 700,000-square-foot redevelopment of a former Super Fresh distribution center. At least 250,000 square feet is yet to be built, and another 280,000 square feet sits vacant.
Duke Realty has delivered two buildings at Chesapeake Commerce Center — totaling 342,500 and 117,600 square feet — both of which filled relatively quickly. Notwithstanding Duke’s development plans for an additional 2 million-plus square feet, the Midwest-based giant has no immediate plans to speculatively build on that site. Duke has recently sold land at the site to both a user and the Port.
— Todd Evans is an associate with NAI KLNB in Towson, Maryland.