MacKenzie Commercial Real Estate Services, LLC is pleased to release their Third Quarter Office Market Report for the Baltimore Metropolitan Statistical Area which includes the following overview from renowned economist, Anirban Basu, President of Sage Policy Group.
Office Market Loses a Bit of Steam During Q3:2015
The 3rd Quarter was certainly an interesting one for Baltimore, if one that was, thankfully, not as interesting as the 2nd Quarter. Every piece of data characterizing activity in the City and regional has special significance as people work to discern the economic impact of April’s unrest. For now, the data and messages remain mixed.
After net absorbing more than 97,500 sf of space during the 2nd Quarter of 2015, City Center net absorbed 63,487 sf during the third. That was enough to drive City Center’s direct vacancy rate lower, however, to 15.3%, down from 18.2% a year ago. Asking rents have expanded as the market has tightened, rising from $20.80/sf a year ago to $21.68/sf more recently.
Superstar companies, or at least those that can afford the highest rents, had been driving the City’s office market forward. During the 2nd Quarter, net absorption in the City’s Class A+ market exceeded 100,000 sf, but absorption slowed to 11,173 sf one quarter later. The City’s Class B and B+ markets actually led the way in terms of net absorption. In total, Baltimore City and City Center net absorbed 29,125 sf during the 3rd Quarter, leaving the citywide direct office vacancy rate at 14.5%.
The suburbs weren’t much better. The Southern Metro sub-region, which includes markets like BWI and Columbia, net absorbed roughly negative 20,054 sf, with Columbia net absorbing a negative 78,517 sf. Vacancy with sublet continues to hover around 10% in Columbia. Potential lessees of space had to deal with federal government shutdown fears during the 3rd Quarter, which may have forestalled leasing activity.
The Northern Metro sub-region led the way in terms of consuming additional space, net absorbing roughly 164,061 sf. Two submarkets stood out – Towson (70,516 sf) and the Reisterstown Road Corridor (64,630 sf). The I-83 Corridor chipped in another 30,556 sf of net absorption, and now boasts a direct vacancy rate below 9%, the lowest of any suburban submarket in the Baltimore metropolitan area. At 22.75%, the highest direct vacancy rate can be found in Harford County.
One might have expected better performance from the regional office market given data characterizing broader economic performance. The Baltimore region has been adding jobs more quickly than the balance of the country recently, helped in large measure by the stabilization of the local housing market and large-scale hiring among certain newcomers to the region. Much of the job growth has come in non-office space using contexts, including in-medical clinics, entertainment venues, and distribution centers. Still, the office market is clearly improving, with the regional asking rate rising from $22.04/sf during the 3rd Quarter of 2014 to $22.76/sf one year later.
For MacKenzie’s complete office market report, click here.