MacKenzie Quarterly Market Report – 4th Quarter 2014
Maryland Now among Nation’s Slower Growing States
There was a time when Marylanders could feel quite good about their economy. Even during the most recent economic downturn and its immediate sloppy aftermath, Marylanders could take some comfort knowing that the state’s economy was somewhat insulated from the worst possible economic outcomes by a still expanding federal government. Unfortunately, that no longer appears to be the case.
Between June and September of 2014, the Free State shed 8,700 jobs, the worst quarterly performance since the third quarter of 2009.Over the past year, Maryland ranked 46th in terms of percentage job growth, 45th if one excludes the District of Columbia.Government, manufacturing and information have all shed more than 2,000 positions over the past year. There is good news, however. The state’s nonfarm employment growth has been reasonably steady and solid for the past two months.Maryland added 3,800 net new jobs in November after adding 2,800 jobs in October. Employment dynamics are particularly encouraging for the office market. Professional/ business services and financial services, the two employment subsectors most closely linked to the office market, were among the region’s best performers, adding 6,400 and 3,100 jobs over the past year, respectively.
The Baltimore metropolitan area is once again the only region of the state experiencing decent job growth. According to the Bureau of Labor Statistics, the Baltimore region added 14,500 jobs between November 2013 and November 2014. This implies that the balance of the State lost 2,400 jobs over that period. Baltimore’s metropolitan job growth has been led by professional and business services (+6,800 jobs; +3.1 percent), leisure and hospitality (+3,700 net jobs; +3.0 percent), construction (+2,800 jobs; +3.7 percent), and trade, utilities, & distribution (+1,800 jobs; +0.7 percent).
Given the Baltimore region’s decent employment dynamics, it is unsurprising that the area’s office market finished the year on a positive note. During the fourth quarter of 2014, regional net absorption totaled 333,921 square feet (sf). Baltimore City (all markets) recorded 148,780 sf of net absorption. This represents a stark turnaround from the third quarter when Baltimore City net absorbed -96,728 sf. Asking rent remained unchanged at $20.47 per square foot (psf).
Of the 185,151 square feet net absorbed by the suburban Baltimore office market during the third quarter, Columbia represented +125,286 sf. Columbia had a good year, net absorbing roughly 370,000 sf for the year. Direct vacancy in suburban Baltimore fell from 14.02 percent to 13.68 percent during the fourth quarter of 2014, with asking rent rising 8 cents to $21.47 psf.
For several years, the regional economy has had to weather various episodes ranging from recession, to sequestration and federal government shutdown. Now the region faces prospects of significant reductions in State government spending, which will both directly and indirectly impact the regional office market. Though the marketplace is likely to continue to recover in 2015, the pace of recovery is unlikely to be particularly brisk.