The office market in the Baltimore metropolitan statistical area — which encompasses the counties of Anne Arundel, Baltimore, Harford, Howard, and the eastern portion of Carroll County, as well as Baltimore City — experienced a slight uptick in activity in the fourth quarter of 2012. The market saw a 0.49 percent decrease in direct vacancy, dropping from 15.77 percent in the third quarter of 2012 to 15.28 percent in the fourth quarter. This dip is attributed to nearly 100,000 square feet of positive absorption within the overall market. As with any statistical number, a closer look at these numbers reveals several patterns that may or may not be indicative of larger economic trends within the market.
The northern part of the market, consisting of Baltimore and Harford counties, saw negative absorption of 100,531 square feet. The 0.44 percent increase is directly attributed to office properties in Harford County entering the market at various levels of occupancy, including a 75,493-square-foot building outside the U.S. Army’s Aberdeen Proving Ground that entered the market completely vacant. Further inspection of activity throughout the north part of the market indicates that small and medium size tenants — firms under 20,000 square feet — are still trading spaces within the submarkets or electing to renew existing space, making necessary size alterations per their budgets. This activity helped the Baltimore County West and Reisterstown Road Corridor decrease their vacancy levels more than a full percentage point.
There is approximately 250,000 square feet of new construction currently under way, the bulk of which is located in the area of Owings Mills in the Reisterstown Road Corridor submarket. Well-documented projects like The Metro Centre at Owings Mills and Foundry Row, are in various stages of planning and construction and will be introducing more than 200,000 square feet of Class A office product to the market some time in 2013 and 2014, altering the landscape of this submarket. Combined with the Social Security Administration’s new location in Woodlawn, the north part of the market is well-positioned for change once the confidence levels of business owners returns.
Baltimore’s City Center carried the overall Baltimore MSA, stepping down from a vacancy rate of 21.09 percent in the third quarter of 2012 to 19.11 percent in the fourth quarter. Some of this change is attributed to multiple buildings being removed from tracking due to ownership and status changes; for example, three office buildings are being converted to residential apartment buildings. However, the majority of the decrease can be tracked back to tenants trading up. Class B properties saw a 6.44 percent decrease, dropping to 27.65 percent in direct vacancy, as tenants took advantage of higher end product available within their budgets. Landlords, tired of carrying empty space, are becoming increasingly competitive in attracting tenants from peripheral submarkets by offering incentives such as free parking. Overall, Baltimore City and City Center saw 58,734 square feet of positive absorption, helping drop the direct vacancy levels by 1.41 percent to 17.37 percent.
In 2013, all eyes will be on home-grown powerhouse Under Armour, as it looks to expand its campus and retail footprint within the city limits. Positive growth for the company has traditionally translated well for office product surrounding the company’s Hull Street headquarters. With plenty of potential office conversion properties available in the South district of Baltimore City, the apparel giant has the potential to change the landscape of this small district that is enjoying a 1.96 percent direct vacancy rate — the lowest in the entire MSA.
Baltimore’s Southern Metro Market, encompassing Anne Arundel and Howard counties, has fared well in recent years due to close proximity to Washington, D.C.; Fort Meade; Baltimore-Washington International Airport (BWI); and Annapolis. Diverse in product, the area is a mix of corporate office parks, mixed-use communities, and small mom-and-pop locations that meet the needs of a variety of industries. Government contractors, in particular, have driven growth within three of these submarkets — Annapolis, BWI, and Columbia — for the last four years. Companies such as Lockheed Martin, Northrop Grumman, Raytheon, and SAIC have all expanded their footprints within the area thus encouraging smaller subcontractors and subsidiaries to also identify locations. In the fourth quarter of 2012, this activity translated into approximately 141,482 square feet of positive absorption. Approximately 98,692 square feet of this absorption occurred in the BWI submarket. Though strong absorption failed to decrease the direct vacancy noticeably — only a 0.59 percent decrease for the Southern Metro market — activity level for 2013 is encouraging.
Overall, interest levels within the Baltimore MSA have increased. Though Baltimore’s market is heavily reliant on federal government spending, with many of our largest firms being government contractors, Maryland is actively targeting technology firms. Space in research and business incubators similar to the University of Maryland-Baltimore County’s bwtech@UMBC park in Baltimore City are completely filled even as firms transition into traditional office space. Firms leveraging the area’s higher education and research systems — Johns Hopkins, UMBC, University of Maryland, and Towson University, which are all expanding their own footprints — are expected to aid in the area’s recovery by creating a technology-driven hub for the East Coast.
— Antony Gross, Vice President, Mackenzie Commercial Real Estate Services