MARKETBEAT Office Snapshot 2Q 2016 Baltimore Market Overview BALTIMORE OFFICE The Baltimore metropolitan office market finished the second quarter of 2016 with almost 11.5 million square feet of vacant space and a 14.6% vacancy rate. Net positive absorption in the second quarter totaled 189,284 square feet, up from the first quarter of 2016. Total net positive absorption for the year is almost 300,000 square feet. Construction completions dropped off slightly in the second quarter as only 159,000 square feet of new inventory was delivered, compared to almost 440,000 square feet in the first quarter of 2016. However, almost one million square feet of additional new space is expected to deliver in the second half of 2016, of which approximately 65% has already been preleased. A total of 2.34 million square feet of new office space is currently under construction, the highest total in the metropolitan region since before the recession. Economic Indicators 2Q 2015 2Q 2016 Baltimore Employment 1.38M 1.41M Baltimore Unemployment 6.2% 4.3% U.S. Unemployment 5.4% 4.9% 12-Month Forecast Market Indicators (Overall, All Classes) 2Q 2015 2Q 2016 Vacancy 15.4% 14.6% Net Absorption (sf) 349K 189K Under Construction (sf) Average Asking Rent* 2.1M 2.3M $22.93 $21.56 12-Month Forecast *Rental rates reflect gross asking $psf/year Overall Net Absorption/Overall Asking Rent 4Q TRAILING AVERAGE 500,000 $23 300,000 $23 100,000 -100,000 $22 The Class A sector in Baltimore has a vacancy rate of 11.3% as slightly more than four million square feet of vacant space is currently available. Approximately 65,000 square feet of net positive absorption in the second quarter increased the annual total for Class A space to slightly more than 255,000 square feet. The Class B sector has a 17.3% vacancy rate after almost 125,000 square feet of net positive absorption in the second quarter increased the annual total out of the negative to almost 41,000 square feet. -300,000 $22 -500,000 $21 -700,000 2010 2011 2012 2013 Net Absorption 2014 2015 2016 Asking Rent, $ PSF Overall Vacancy 21% 20% 19% 18% Historical Average = 17.4% 17% Baltimore City finished the second quarter with a vacancy rate of 16.7% after approximately 29,000 square feet of net negative absorption. The Class A sector has a vacancy rate of 11.8% and the Class B sector has a vacancy rate of 20.2%. The largest lease announcement of the quarter was the future move of U.S. Army Corps of Engineers (ACE) to 2 Hopkins Plaza. This move, scheduled for 2018, will aid in the redevelopment of the office building that has been vacant since PNC moved in 2012. The majority of the building will be converted to apartments. Other major lease announcements include the move of both the Baltimore Business Journal and Bolton Partners to 36 South Charles Street. Both moves will open up space along Pratt Street, a corridor that currently has only an 11.1% vacancy rate. 16% 15% 14% 2010 2011 2012 2013 2014 2015 2016 The Northern Baltimore-Washington (NBW) Corridor, comprised of the BWI Airport, Howard County and Greater Annapolis submarkets, finished the second quarter of 2016 cushmanwakefield.com I 1 MARKETBEAT Office Snapshot 2Q 2016 Baltimore with almost 122,000 square feet of net positive absorption, lowering the office vacancy rate to 12.25%. The Class A sector has an 8.3% vacancy rate after relatively flat absorption activity in the second quarter. The Class B sector actually accounted for more than 137,000 square feet of net positive absorption, lowering its vacancy rate to 15.4%. This spillover of demand into the Class B is not surprising considering the tight vacancy rate in the Class A sector. Pratt Street Corridor THE MOST EXPENSIVE ADDRESS IN BALTIMORE HAS LITTLE NEW AVAILABILITY Four Quarter Trailing Average 150,000 20.00% 100,000 16.00% 50,000 12.00% 0 8.00% -50,000 4.00% A TOTAL OF 2.34 MILLION SQUARE FEET OF NEW OFFICE SPACE IS CURRENTLY UNDER CONSTRUCTION, THE HIGHEST TOTAL IN THE -100,000 0.00% 2010 METROPOLITAN REGION SINCE BEFORE THE 2011 2012 2013 2014 Net Absorption 2015 2016 Vacancy Rate RECESSION Northern Baltimore-Washington Corridor The Suburban North and West submarkets combined for 13,290 square feet of net positive absorption in the second quarter of 2016 and have totaled almost zero net absorption year-to-date in 2016. The Suburban North submarket remains the stronger of the Baltimore Beltway markets, as evidenced by the 11.2% overall vacancy rate and the 7.7% Class A vacancy rate. The I-83 Corridor and Towson primarily contribute to this low vacancy rate, and there is currently very little new construction to add to the tight supply of Class A office space. Other than several one-story buildings being constructed at Baltimore Crossroads in White Marsh, new construction is limited to the Towson Row mixed-use development near Towson University. AVAILABLE OFFICE INVENTORY CONTINUES TO SHRINK, DRIVING NEW CONSTRUCTION 20% 18% Historical Average = 15.5% 16% 14% 12% 10% 2010 2011 2012 2013 2014 2015 2016 Under Construction Totals Outlook • Rents have not demonstrated sustained growth during this recovery cycle; flat to limited rent growth could continue. • Absorption totals in Downtown Baltimore will increase dramatically by year-end, particularly as new, preleased construction is delivered to the market. • Vacancy rates in Howard County could increase slightly as new construction delivers to the market; however the new blocks of space will be very attractive in an otherwise tight market. NEW CONSTRUCTION IN THE CBD IS DRIVING THE INCREASE IN NEW INVENTORY 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Suburban CBD cushmanwakefield.com I 2 MARKETBEAT Office Snapshot 2Q 2016 Baltimore YTD CURRENT NET OVERALL ABSORPTION NET (SF) ABSORPTION (SF) UNDER CNSTR (SF) OVERALL AVERAGE ASKING RENT (ALL CLASSES)* OVERALL AVERAGE ASKING RENT (CLASS A)* 136,776 69,040 $22.05 $28.45 -29,024 -92,530 839,836 $21.61 $24.39 6,051 21,874 0 $25.80 $27.50 33.54% 83,082 82,297 26,000 $28.25 $28.25 TOTAL BLDGS INVENTORY (SF) DIRECT VACANT (SF) OVERALL VACANCY RATE 163 11,620,027 1,494,740 12.86% 36,273 Baltimore City 171 20,464,170 3,425,033 16.74% Greater Annapolis Area 104 4,203,606 770,454 18.33% 42 2,342,499 785,604 SUBMARKET BWI Airport Harford County Howard County 861 17,758,894 1,847,024 10.40% 79,612 140,533 750,412 $24.00 $26.50 Suburban North 240 14,466,305 1,625,139 11.23% 47,995 17,077 362,240 $21.00 $23.25 Suburban West BALTIMORE TOTALS 152 8,031,243 1,533,577 19.10% -34,705 -9,956 298,600 $19.10 $21.00 1,733 78,886,744 11,481,571 14.55% 189,284 296,071 2,346,128 $21.56 $24.61 TOTAL BLDGS INVENTORY (SF) SUBLET VACANT (SF) DIRECT VACANT (SF) 330 35,574,709 130,580 3,881,106 11.28% 64,658 1,403 43,312,035 295,758 7,174,127 17.25% 124,626 *Rental rates reflect gross asking $psf/year SUBMARKET *Rental reflect gross asking $psf/year Class rates A Class B YTD CURRENT OVERALL OVERALL NET VACANCY NET ABSORPTION RATE ABSORPTION (SF) (SF) UNDER CNSTR (SF) DIRECT AVERAGE ASKING RENT* OVERALL AVERAGE ASKING RENT* 255,274 1,762,748 $25.05 $24.61 $17.50 $17.35 40,797 582,380 *Rental rates reflect gross asking $psf/year Key Lease Transactions 2Q 2016 PROPERTY Hopkins Plaza SF 143,000 TENANT TRANSACTION TYPE SUBMARKET U.S. Army Corps of Engineers Lease Baltimore City Rivers Corporate Park 57,480 JHU Applied Physics Laboratory Lease Howard County Annapolis Commons 25,000 South Moon Under Lease Greater Annapolis 10490 Little Patuxent Parkway 21,916 Harkins Builders Lease / Relocation Howard County Key Sales Transactions 2Q 2016 PROPERTY SF SELLER/BUYER Metro West - 300 North Greene St 899,892 U.S. GSA / Caves Valley Partners Towson Commons - Lafayette Bldg 52,230 Garrison Investment Group / Mid-Atlantic Properties 315,350 Hudson Advisors / Northrop Grumman West Quest Technology Park PRICE / $PSF $7,073,740 / $7.86 $3,200,000 / $61.27 $79,000,000 / $250.52 SUBMARKET Baltimore City Suburban North BWI Airport cushmanwakefield.com I 3 MARKETBEAT Office Snapshot 2Q 2016 Baltimore OFFICE SUBMARKETS BALTIMORE, MD Forest Hill Westminster 23 31 27 Sparks Glencoe 140 88 146 91 Phoenix Fallston 145 24 1 25 32 Clearview Airpark Airport Reisterstown SUBURBAN WEST 97 Hunt Valley Oregon Ridge Park 140 Cockeysville Timonium Woodlawn 99 97 Dayton 83 45 Sandtown-Winchester 70 Baltimore 1 Arbutus White Marsh West Elkridge Columbia Weide Ahp (Aberdeen Proving Ground) Essex 702 Canton Essex Skypark Airport 95 Dundalk Cherry Hill Edgemere 213 151 Curtis Bay Pumphrey Elkridge Hart-Miller Island State Park 157 695 695 895 100 Edgewood 150 Middle River 895 Riverside 95 40 695 Halethorpe 175 Joppa 151 40 395 Catonsville Ellicott City Philips Aaf 159 Rosedale BelairEdison 144 Dalton Clarksville 129 40 HOWARD COUNTY 32 695 Patapsco Valley State Park Abingdon Carney Glenham-Belford Waltherson Hampden Frankford Gwynn Oak 40 7 95 DOWNTOWN 40 70 924 542 Reisterstown Glen Station Central Park Heights Lochearn Milford Mill Aberdeen 95 543 Kingsville Parkville Pikesville Woodbine 695 139 695 Randallstown 40 HARFORD COUNTY 152 Towson 26 97 Bel Air South 24 Perry Hall Garrison Sykesville SUBURBAN NORTH 83 795 North Point State Park 298 21 445 10 Highland Brinklow 97 Olney 108 97 North Laurel 200 T. Howard Duckett Watershed 1 Laurel 29 200 95 29 Chillum Bowie Greenbelt Hyattsville Cushman & Wakefield 100 Light Street, Suite 1400 Baltimore, MD 21202 cushmanwakefield.com Lake Shore Severna Park Bacon Ridge Natural Area GREATER ANNAPOLIS Crofton AREA 450 95 424 Lanham-Seabrook 301 50 For more information, contact: Matthew Myers, Senior Research Analyst Tel: +1 410 347 7808 matthew.myers@cushwake.com 445 648 Arnold Eastern Neck National Wildlife Refuge 301 97 Glenn Dale 201 32 3 College Park 1 Rock Hall 2 Settler’s View 295 Hollywood Langley Park Ashburn Bayside Beach 177 175 Woodbridge Crossing 495 Forest Glen 177 Pasadena Patuxent Research Refuge Beltsville Woodmor 174 South Laurel 1 212 97 BWI AIRPORT Fort Meade Odenton Calverton Silver Spring Severn 295 32 446 20 Five Buoys 10 Cloverly Fairland Riviera Beach Glen Burnie 32 28 Chevy Chase Baltimore-Washington International Thurgood Marshall Airport Fulton Ashton 289 Ferndale 95 40 Havre De Grace 7A 40 Owings Mills 32 70 147 129 Eldersburg Fallston Airport Baldwin 45 Liberty Reservoir 155 165 45 Flinkburg 462 Harford County Airport 22 Bel Air 83 128 155 Bel Air North 152 50 450 Parole 665 50 18 Annapolis Bay Bridge Airport Chester 50 301 8 About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. Copyright © 2015 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. cushmanwakefield.com I 4
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