Mid Atlantic Real Estate Journal — Commercial Office Spotlight — February 22 - March 14, 2013 — 11B
www.marejournal.com
C ommerCial o ffiCe S potlight
Q4 2012 | OFFICE USE
Office Market Report BALTIMORE METRO AREA
Baltimore Office Market Recovering Slowly
MARkET dEfInITIOn The Baltimore Regional office market consists of Baltimore City and the surrounding counties of Anne Arundel, Howard, Baltimore and Harford. The Colliers-defined submarkets of Annapolis, BWI Area, Howard County, Baltimore County West, Baltimore County North, Baltimore County East and Harford County are all located within this Region. According to Costar, Inc. there were 370 Class A buildings within the Baltimore Metro area with more than 44,500,000 square feet of space. In the 4 th quarter of 2012 just less than 6,750,000 square feet of that space was vacant, equivalent to a 15.2% vacancy rate.
MARkET OVERVIEW The Baltimore Metro Area Class A office market continued to show positive net absorption for 2012, holding vacancy rates steady throughout the year even as new buildings have continued to be delivered. These are signs that the regional market is recovering, though not at the rate that was expected. Economic growth in the Baltimore region will likely be “up and down” for the next several quarters, as businesses and investors wait to see what happens with the “fiscal cliff” and federal spending cuts. Nationally, the markets that are excelling economically tend to be those geared towards intellectual capital, energy and entertainment (ICEE). These markets include Houston, Boston, Denver and San Francisco. Markets like Baltimore, driven by traditional sectors such as finance, insurance and real estate (FIRE), are showing signs of slowing as ICEE markets are experiencing twice the amount of office absorption in 2012. That notwithstanding, the Baltimore region has seen its economy bolstered due to growth in education, healthcare and business services. Growing employment has traditionally been an indicator of increased development, construction, and a growth in leased square footage. However, there is now a national trend which sees an overall shrinkage in new square
footage even while employment continues to improve. Employers in the market continue the “flight to quality” trend leaving older Class B office space vacant. Some of these older buildings are being repositioned for other uses, particularly in Baltimore City, which recently announced several older office buildings being converted to apartment units. The defense sector in the Baltimore region has suffered greatly from election uncertainties, the looming fiscal cliff and fear of federal spending cuts. Harford County took the biggest hit as half of the office space built specifically for defense employees in Aberdeen sits vacant. The forecast is not entirely bleak with increased activity at Ft. Meade and continued strength in the BWI corridor which has become a local hub for many cyber security companies. Baltimore’s economy will continue to grow in the next year, though not as rapidly as previously forecasted, however nationally the Baltimore Metro market is performing comparatively well. nET ABsORpTIOn Net absorption in the Baltimore Region Class A office market finished strong in the 4 th quarter of 2012, marking three consecutive quarters of positive absorption, despite several construction deliveries. Absorption in Class B & C office space slowed slightly over the 3 rd quarter of
Class A Net Absorption
1,000 1,200 1,400 1,600 1,800
0 200 400 600 800
2008
2009
2010
2011
2012
Class A Vacancy Rate
10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 16.0% 17.0% 18.0%
2008
2009
2010
2011
2012
MARkET IndIcATORs
Q3 2012 Q4 2012
VAcAncY
nET ABsORpTIOn
cOnsTRucTIOn
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REnTAL RATE
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