Comprising approximately 155 million square feet of industrial space, the Baltimore industrial market continues to recover, albeit gradually, from the recession. Key drivers for the Baltimore metropolitan area include the Port of Baltimore, proximity to Washington, D.C., and direct accessibility to Interstate 95 and the major population centers along the Eastern seaboard.
As of the end of the first quarter, the vacancy rate for the Baltimore industrial market was 9 percent, which is down from 13.3 percent at the depth of the recession. Vacant inventory has been gradually absorbed since the recession and market fundamentals continue to improve.
Industrial product continues to be a favored asset class, and Baltimore is deemed to be a “core” market among private and public institutional investors.
Rental Rates
Warehouse rental rates throughout the Baltimore metropolitan market have increased from 2010 to 2014 as the local and national economy continues its slow recovery. Overall asking rates on a triple-net basis have increased approximately $1 per square foot since 2010 as the average asking rate for bulk industrial product was at $5.22 per square foot as of the first quarter of this year.
As the vacancy rate has dropped in recent years, landlords have held firmer on rental rates and concessions, while still components of major transactions, have lessened. The Harford/Cecil County submarket, where the average deal size is about 300,000 square feet, has experienced the most dramatic recovery as the average strike rent has increased from $3.25 triple-net in 2010 to $4.25 triple-net in 2014.
Speculative Development
Speculative industrial development has been sporadic in the Baltimore market since the onset of the recession beginning in 2008. Despite decreasing vacancy rates and rising rental rates, nearly all of the new construction delivered to the market has been build-to-suits for large industrial users. Roughly 4.2 million square feet is due to deliver to the market by the first quarter of 2015, of which 93 percent is pre-leased to tenants such as Amazon, Reliable Churchill, Sephora, Clorox and Coca-Cola. The only speculative warehouses that have delivered since 2012 were built by Liberty Property Trust, which delivered two warehouses totaling about 243,000 square feet in the Baltimore/Washington Corridor earlier this year. They are 90 percent vacant as of this writing.
Despite hesitancy in recent years from developers, there are two major speculative industrial projects that will deliver in the first half of 2015. Chesapeake Real Estate Group and Prudential are delivering a 435,900-square-foot building at Baltimore Crossroads on Route 43 in Baltimore County East. Chesapeake and an undisclosed capital partner will also deliver a 571,500-square-foot building at 610 Chelsea Road at Hopewell Farm in Harford County. The construction of these large industrial buildings is a very good sign for the Baltimore industrial market, and their performance will be a good indicator of the health of the market going forward.
Tenant Demand, Leasing
Despite a tightening inventory of Class A industrial space in the Baltimore market and projected net positive absorption, leasing transaction volume in the Baltimore industrial market is down approximately 30 percent from this time last year. The majority of leasing activity has been driven by a few large, national users with more than 2.1 million square feet of positive net absorption expected to commence throughout 2014. These include Amazon, Sephora, Clorox, Reliable Churchill and Under Armour.
The I-95 North submarkets have performed well in recent years with some lease transactions over 400,000 square feet, while the Baltimore/Washington Corridor has seen activity flatten the last 18 months as mid-sized tenant market has been relatively stagnant.
— By Bill Pellington, Senior Vice President, CBRE. This article originally appeared in the July 2014 issue of Southeast Real Estate Business.