MacKenzie Commercial Real Estate Services, LLC is pleased to release their Second 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.
Through it all, Office Market Momentum Persists
The second quarter was certainly an interesting one for Baltimore. For now, the events of April and May do not appear to have undone office market momentum. After net absorbing fewer than 14,500 square feet of space during the first quarter of 2015, City Center net absorbed 97,878 square feet in the second quarter. City Center’s direct vacancy rate has fallen from 17.2 to 15.6 percent over the past year, while asking rents have expanded from $20.34/sf one year ago to $21.37/sf more recently.
For whatever reason, the economy seems to be driven increasingly by ultra-successful, rapidly expanding firms. This is likely a reflection of the impact of technology and globalization, which permits some firms to generate incredible rates of growth while suppressing the economic prospects of others. Accordingly, more than 100 percent of the net absorption in City Center during the second quarter occurred in Class A+ space, which net absorbed more than 100,000 square feet of space during the second quarter alone. Asking rent for this category of space is now approaching $29.50/sf, up almost precisely $4.00/sf in just one year. By contrast, City Center Class B space is associated with a 28.4 percent vacancy rate and an asking rent that is below its year-ago level.
There is also some evidence in the data that the impacts of sequestration are beginning to release their grip on the local economy. Job growth in Maryland has been nothing short of spectacular recently. After several months of soft employment growth, Maryland added 13,500 net new positions in May after adding 16,000 jobs in April. One could have viewed April’s job growth as simply a post-winter event, with jobs returning to construction and other segments of the economy typically impacted by icy weather. The May data, however, strongly suggest that there is something more afoot, and that businesses are beginning to aggressively expand operations in the Free State. Over the past twelve months, Maryland has added 1.8 percent to its job totals, which translates into 46,800 net new jobs. This represents the best year-over-year performance since the period stretching between March 2005 and March 2006 (55,200 jobs; 2.2%). Maryland’s D.C suburbs appear to be coming back to life with the pace of economic recovery accelerating in Baltimore’s suburbs as well.
These dynamics are neatly reflected in Baltimore area office market data. Of all Baltimore metropolitan area submarkets, the best performance in terms of net absorption was in the Southern Metro market. That sub-market net absorbed more than 303,000 square feet during the second quarter. Direct vacancy is now below 11.6 percent. This is the submarket that had been most directly impacted by the onset of sequestration in March 2013.