MacKenzie Quarterly Market Report – 4th Quarter 2015
MacKenzie Commercial Real Estate Services, LLC is pleased to release their 2015 4th Quarter Office Market Report for the Baltimore Metropolitan Statistical Area which includes the following overview from renowned economist, Anirban Basu, Chairman and CEO of Sage Policy Group. To view MacKenzie’s complete office report, click here.
It was a Year of Progress in the Local Office Market
Baltimoreans will want to quickly put 2015 in the rear view mirror. Disappointing performances by the Orioles and Ravens and monumental public safety issues in the city help set the stage for a better 2016. Despite poor optics, the fact of the matter is that the regional economy easily outperformed consensus expectations last year. The majority of the roughly 50,000 jobs added in Maryland last year were added in the Baltimore metropolitan area.Development has accelerated in the city, Towson, Owings Mills, Columbia, and elsewhere.
Unlike prior years, the composition of the local economy actually helped last year. Both the Washington and Baltimore metropolitan areas were laid low by sequestration, which began impacting the economy in early-2013. Those impacts began to wane last year.
Moreover, the region was not impacted the way that many others were by collapsing commodity prices.While states like North Dakota and West Virginia are now in recession, Maryland benefits from lower input prices since we are much more likely to be consumers than producers. The strong U.S. dollar also tends to impact other communities more intensely. Maryland is not an export-intensive economy. While that causes Maryland to lag economically during periods of rapid global economic expansion, it improves relative economic performance when exports are lagging.
The region’s positive economic performance in 2015 helped to drag regional vacancy lower. At the end of 2014, the total vacancy rate in City Center stood at 19.5%. By the end of 2015, it had fallen to 15.3%. Class A+ vacancy declined from 9.6% to 4.4%.
In the southern metro area, which disproportionately benefits from the spin-off activity at Fort Meade, office vacancy slid from 12.3 % to 11.6%. Another 95,000 sf were net absorbed during the fourth quarter and for the year the market absorbed nearly 400,000 sf. Among the southern metropolitan sub-markets, Annapolis and BWI registered the best net absorption tallies for the year (147,546 sf and 141,802 sf respectively).
Vacancy in the northern metropolitan area, however, was essentially unchanged over the course of the year. No northern sub-market generated significantly positive net absorption last year. While Towson net absorbed 66,300 sf last year and Harford County net absorbed 52,200 sf, negative net absorption was registered along the I-83 Corridor and in Baltimore County West.
The current year is shaping up to be a good one. The regional economy appears positioned for additional job growth.The region’s unemployment rate has been a few tenths of a percentage point above the national average. Viewed from the perspective of growth, that could be viewed as good news since expanding firms are more likely to find available employees here than in metropolitan markets with much lower unemployment rates like Minneapolis, Seattle and Washington, D.C. Better economic performance is also supporting higher asking rents, which rose $0.50/sf last year to $22.53.That translates into 2.3% asking rent growth.In City Center, asking rent expanded 7.8% to end the year at $21.64.