Small biz improves post-recession; flex

What a difference a year can make. Especially when it's coupled with some uplifting economic news.

In early 2003, the commercial real estate market generally wasn't absorbing any space. Twelve months later, industry executives are more optimistic, especially as they consider the flex market in the Baltimore-Washington corridor. The economy is better, so small businesses are picking back up and signing leases for flex space.

Edward St. John of MIE Properties Inc. said business in the flex sector is getting much better. Manekin LLC's George Santos can feel the momentum building.

St. John, president of MIE Properties in Catonsville, noted an up- tick in flex during the past few months and is seeing the same trend in the company's Frederick and Northern Virginia offices. Activity has been extremely strong, he said.

Company Vice President Gerard Wit said that while the MIE's BWI Tech Park had been slow to lease, about 100,000 square feet has been leased during the past six months. He added that MIE's overall flex portfolio in the Baltimore-Washington corridor is 95 percent leased.

That is where the job growth and road network is, notably along Route 100, plus Baltimore/Washington International Airport and National Security Agency. However, other submarkets around the Beltway are slower, particularly Harford County and Northern Baltimore County, Wit said.

Manekin LLC Vice President George Santos said the vacancy rate in Columbia dropped from 14.3 percent in the second quarter of 2003 to 13 percent at the end of the year. Because there is little new development slated, he expects this trend to continue.

Aside from Abrams Development's 53,000-square-foot, two-building project in Columbia Gateway, there has been no spec construction, he said. But the general feeling is that the stability in the economy is for real and will continue. But he warned that an abundance of sublet space left vacant by Corvis Corp., among others, may continue to depress rental rates.

J. Allan Riorda, principal with NAI KLNB Inc. in Columbia, thinks the market is improving and believes Howard County's flex vacancy rate will decrease. There is not much new construction going on, and the defense industry continues to take down more space. We are hoping that the rate will be in the low teens by the end of the year, he said.

Last year the vacancy rate in Howard County fell from more than 16 percent to 14.9 percent, not including sublets.

Muscle returns

Elsewhere in the corridor, NAI KLNB Associate Alan Coppola noted a quirk in the market: the considerable vacancy in the Ammendale area of Beltsville in Prince George's County.

There seems to be a changeover in who leases those properties from tech companies to service companies, he said. We're seeing more mainstream building and services-type companies filling those spaces, with the traditional tech tenants downsizing. So, it looks like there will be downward pressure on rental rates, which range from $7 to $9 foot.

Still, the general good news does not surprise J. Scott Wimbrow, senior vice president/principal with the Columbia office of MacKenzie Commercial Real Estate Services Inc. Flex is the first market to recover after a recession because small businesses come back up. Flex in Howard and Anne Arundel counties is pretty hot. Anne Arundel never seems to have enough space.

Much of the sublet space seems to have been gobbled up, he continued, and now we are dealing directly with the landlords who seem more confident in the market. Most buildings are renting anywhere from $8 to $9.50 per foot, triple net, then go up based on improvements and location.

But Wimbrow feels Columbia has outgrown the flex market. You can't find the land cheap enough to build a flex building there anymore because the rents can't support what the land cost demands. Aside from one spot in Columbia, The Rivers, I think the hotspots for flex will be near BWI and what's left in Troy Hill. And not many parks are planned, he said.

Copyright 2004 Dolan Media Newswires
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