There's no summer doldrums in Maryland's real estate and development

Nothing is getting done right now; let's wait until after Labor Day - an oft-heard lament during summer's latter days.

Still, numerous commercial real estate professionals report ample activity during the third quarter in a market that continues to make strides in the office, industrial and flex sectors (the biggest deals of the quarter to date are listed below courtesy of Bethesda- based research group CoStar Group Inc.).

Then there's the retail sector, which has been so tight for so long that companies wishing to expand are having to break traditional boundaries to find new markets.

Office

Address: 228 W. Lexington St., Baltimore

Square footage: 170,000

Submarket: Central Business District

Tenant: Catholic Relief Services

Tenant representative: Colliers Pinkard

Landlord: The Harry & Jeanette Weinberg Foundation

Landlord representative: The Harry & Jeanette Weinberg Foundation

Sign date: 7/25/2005

The third quarter has been mainly just a continuation of the solid trends that we have already seen in the metro area since the first of the year, said Jeffrey Samet, senior vice president with Colliers Pinkard.

So far this year, 1.02 million square feet have been leased. If this pace continues, it will fall short of the record 2.5 million square feet rented last year.

But construction activity has remained strong in the metro area, with about 617,000 square feet of new office space delivered during the first half of 2005 and 2.4 million more in the works, according to Samet. About 40 percent of that space was pre-leased.

Those are healthy numbers after a record year, Samet said. Our outlook for the balance of the year is positive. The Department of Labor, Licensing & Regulation reported solid job growth for the first quarter, which is when the jobs that generate leased space are created. The metro area had particular strength in administrative and support positions, as well as professional and business services.

He also looked ahead to the upcoming Base Realignment and Closure recommendations for Fort George G. Meade and Aberdeen Proving Ground, which will add further impetus to projects under development around the military installations.

In Baltimore's central business district, there is still a 20 percent vacancy, but activity has been brisk despite the usual summer lull, according to Robert Freedman, a principle with recently renamed Corridor Reznick LLC, formerly Corridor RF&S Real Estate.

He used his company's base at 500 E. Pratt St. as an example.

When we moved into our building in January, the Reznick Group was the only other tenant. But since, the Capitol Grill, Saul Ewing, Planit, Trammell Crow and AON have moved in, Freedman said. Only 60,000 square feet are still available, so we could have this 260,000-square-foot building filled by December.

The city, he said, is coming into its own with the residential development, and the office market is following along at a nice clip.

Michael Bradley a senior associate with Trammell Crow Co. agrees: The suburban flight is over, and there is plenty of parking downtown. He even dares to say the market is starting to resemble the '90s, but at a little slower pace.

Beyond city limits and into the Baltimore-Washington Corridor, the market continues to meet tenants' demand for space, according to Roger Waesche, chief financial officer for Corporate Office Properties Trust.

According to figures supplied by Colliers Pinkard, 260,864 square feet - or almost half of the entire metropolitan office space that was absorbed during the first half of the year - occurred in the Corridor, defined here as the BWI area, Greater Annapolis and Howard County.

The market is tightening up in the Corridor. We have seven buildings under construction there, five in National Business Park (NBP) and two in Columbia Gateway, Waesche said, also mentioning other projects from Liberty Property Trust, Merritt Properties and Abrams Development.

The market is in a much better position of equilibrium than it was a year ago, he said. We have a high percentage of pre-leased space under construction, including three-and-a-half of our five new buildings in NBP. However, the lack of land is a long-term issue in the Corridor.

Industrial

Address: 600 Hickory Drive, Aberdeen

Square footage: 205,030

Submarket: Harford County

Tenant: Solo Cup

Tenant representative: Trammell Crow Co.

Landlord: Hickory Ridge Properties Inc.

Landlord representative: CB Richard Ellis

Sign date: 8/2/2005

Colliers Pinkard Principle Richard Latini calls the industrial market abnormally busy, and not just in Maryland. It's very common for things to slow down from July 4 to Labor Day, but we have seen an impressive increase in traffic in all of the submarkets with regard to leasing.

Latini says that reflects the improved economy and growing confidence of businesses.

We have seen a tick down in our vacancy rates and an absorption rise from year end, he said, pointing to the metro mid-year overall vacancy rate of 17.4 percent, down from 18.68 percent.

He anticipates a further decrease by year end, with 1.3 million square feet under construction, some of which is pre-leased. Most of the new product will come online next year.

We are seeing some significant Class-A and -B absorption, said James Lighthizer, president of Chesapeake Real Estate Group in Glen Burnie, noting his firm's recent deal with Model Home Interiors in Elkridge for 120,000 square feet. Baltimore metro is very, very tight.

Generally speaking, because there is very little product coming back to the market, vacancy has dropped, Lighthizer said. There has been a good deal of space available in Harford County, but there has been some leasing there, too, by the likes of Ikea and Solo Cup.

Activity in the Baltimore-Washington Corridor also is picking up, according to Thomas Whelan, first vice president with Ryan Commercial.

The vacancy rate was 9.39 [percent] at the end of the first quarter, and I expect it to go down to 9.1 percent when the second quarter numbers come in. Whelan expects the third-quarter numbers to end up below 9 percent. Rates are holding steady and even increasing with the newer, more functional product.

He cited new projects such as Preston Gateway in Hanover, where Elite Spice and the General Services Administration have taken about 150,000 and 130,000 square feet, respectively, and Patapsco Valley Business Center and the Baltimore Aircoil site off Route 1 in Howard County.

Today's challenge, said CB Richard Ellis Managing Director John Blumer, is figuring out where to build more industrial space in a market with dwindling land supply. While some observers look toward Carroll County, which lacks a major infrastructure artery, he thinks that's only part of the story.

Carroll County will be fine for smaller properties. But if a company can't find 100,000 square feet or more along I-95, a better bet is the I-81 Corridor, Blumer said. Another good option is redeveloping existing properties, such as the General Motors plant on Broening Highway.

Flex

Address: 2524 Kirk Ave., Baltimore

Square footage: 25,000

Submarket: Baltimore Midtown

Tenant: Baltimore City Police

Tenant representative: Benchmark Commercial Properties Inc.

Landlord: Two Farms Inc.

Landlord representative: Benchmark Commercial Properties Inc.

Sign date: 7/03/05

In the flex market, there hasn't been much space added in recent years, outside of MIE projects like its buildings at Cromwell and Quarterfield on the outskirts of Glen Burnie and several in Bowie, but sublet space is starting to get absorbed, according to John Boote, NAI KLNB principle.

St. John Properties Inc., formerly MIE Properties Inc., also is moving forward at BWI Technology Park, finishing four flex buildings that total about 200,000 square feet.

So far in 2005, 238,200 square feet of flex space have been added in the Baltimore metro area, with the rest of this year's estimated 397,000 square feet to come online by late in the fourth quarter. Today, the vacancy rate for flex stands at 11 percent, down from 14 percent the same time last year.

Like many of his colleagues, Boote is pleased with recent activity levels.

It's been moderate, which is good for August, though he noted pockets of inactivity that have been exacerbated by the summer months, such as Marley Neck and some older Class-B properties throughout the Baltimore-Washington Corridor.

Cole Schnorf, senior vice president for Manekin LLC, said the availability of land for flex space is also an issue.

There isn't much of it, and it is now being sold for mid-rise office space, so developers like us and Abrams [Development] are doing a mix of mid-rise and flex, he said.

Often developers will mix office and flex or just forego flex altogether because they can get more money for office space. But that can have its perils.

There is some danger of an oversupply of office space, since so much is being built, Schnorf said. And there will be less supply of flex due to lack of construction. Then the question becomes, 'Will developers seek out sites for flex that have been viewed as more industrial?'

Retail

With its flex program for 2005 mostly complete, St. John Properties is breaking ground on two 10,000-square-foot retail buildings in Lake Shore Plaza in Pasadena, where Dunkin Donuts/ Baskin Robbins already has signed on for 2,100 square feet.

While such small retail opportunities are still available in the area, there is little space to accommodate larger tenants.

But duplication of Hecht's and Macy's stores at Marley Station, Owings Mills Town Center and White Marsh Mall will open up some space, according to David Goldbloom, vice president of Erwin L. Greenburg Commercial Corp. in Owings Mills.

But the market is pretty tight in the major corridors, such at York Road, Reisterstown Road and Belair Road, Goldbloom said. There is some availability in the White Marsh north of Joppa Road, the Essex/Middle River area, and Anne Arundel and Prince George's counties. But it's almost to the point that discussing vacancy numbers is moot.

The big news is Wegman's entree into Maryland with 140,000 square feet in Hunt Valley Towne Center, slated for Oct. 2.

That center has revitalized the north York Road corridor, he said. Twenty-three stores totaling 235,000 square feet have already opened there.

While some big-boxes are now spying Baltimore's central business district for space, there is always the question of available space and at what cost.

Many retailers want to be there due to the underserved, high density of population. But what is also happening is that the market is expanding further out, said Peter Framson, principle with Green Light Retail.

Due to expanding residential markets, the growth is no longer just west of the Bay Bridge, east of the Potomac River or south of Frederick, he said. Retailers are noticing the expansion to these exurban areas, so they're moving toward the Eastern Shore and the eastern panhandle of West Virginia.

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