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Baltimore AMERICAS MarketBeat Office 2page Q12013

Baltimore AMERICAS MarketBeat Office 2page Q12013

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Cushman & Wakefield, Inc.500 East Pratt Street, Suite 500Baltimore, MD 21202www.cushmanwakefield.com/knowledgeFor more information, contact:Paula Munger, Regional Research Director703 847 2785Paula.Munger@cushwake.com 
The market terms and definitions in this report are based on NAIOP standards. Nowarranty or representation, express or implied, is made to the accuracy or completenessof the information contained herein, and same is submitted subject to errors, omissions,change of price, rental or other conditions, withdrawal without notice, and to any speciallisting conditions imposed by our principals.© 2013 Cushman & Wakefield, Inc. All rights reserved.
1
ECONOMIC OVERVIEW
Despite the uncertainty surrounding the U.Sbudget deficit, job growth continued inMaryland. According to the Bureau of LaborStatistics (BLS), the preliminary February 2013unemployment rate for Maryland, at 6.6%, was1.1 percentage points (pp) lower than the national unemploymentrate of 7.7%. Continued growth in the Professional/Business Servicessector and the Financial Activities sector added 2,900 jobs inFebruary, decreasing Maryland’s unemployment rate half of apercentage point from a year ago.
VACANCY RATES FLAT, ABSORPTION IMPROVES
In the first quarter of 2013, the Baltimore office market direct andoverall vacancy rates were 13.7% and 14.6%, respectively. The overallvacancy rate ticked up a mere 0.3 pp, however, there were signs of improvement in the CBD direct vacancy rate due to the 65,367-square foot (sf) State’s Attorney’s Office occupancy at 120 E.Baltimore Street. The direct vacancy rate declined 1.4 pp from firstquarter 2012 to 14.7% in the CBD, while the non-CBD directvacancy rate experienced a slight uptick from 13.2% to 13.5%. Class Avacancy rates showed the greatest signs of improvement as CBD andnon-CBD rates fell 1.9 pp and 0.7 pp, respectively, from first quarter2012. Overall net absorption was positive at 258,617 sf, showing signsof improvement from a year ago when overall net absorption waspositive 63,673 sf. Significant tenant occupancies included 153,500 sf by the U.S. Army Corps of Engineers at 9055 Sterling Drive and the76,300-sf Enterprise Business Partners’ occupancy at 11000 BrokenLand Parkway. Tenants’ flight to class A product was evident asoverall net absorption was positive 368,210 due to informationtechnology and government contractors occupying 268,143 sf of classA product in Howard County.
LEASING AND SALES ACTIVITY
From the first quarter of 2012 to the first quarter of 2013, year-to-date leasing activity in the Baltimore office market, at 657,170 sf,increased 21.4%. New deals outpaced renewals by 42%. There were380,220 sf of renewal deals signed year-to-date. Year-over-year, theaverage direct rental rate at $23.71 per square foot (psf), increased1.2%. Transaction volume of traditional office product in the regionwas slow through the first quarter of 2013. The sole significant salewas 920 and 930 Ridgebrook Road in Sparks, MD from Equus CapitalPartners to an affiliate of Greenfield Partners in early February. Thissale reflects the still elevated, institutional demand for high qualityproduct in the Baltimore metro area, which continues to be aided bynear record low interest rates.
OUTLOOK
 Going forward, 201 North Charles, currently on the market, willprove a litmus test for the liquidity of assets within Baltimore City.Suburban properties concentrated in Baltimore and Howard Countieswill continue to become more attractive as values begin to reboundfrom downturn-era pricing. Expect many more trades as officebecomes the next preferred asset class for yield-chasing investors.Larger tenants are expected to renew and rental rates will remain flatuntil the cloud of uncertainty due to sequestration begins to clearafter mid-year.
 
STATS ON THE GO
Q1 2012 Q1 2013Y-O-YCHANGE12 MONTHFORECAST
Overall Vacancy 14.3% 14.6% 0.3ppDirect Asking Rents (psf/yr) $23.43 $23.71 1.2%YTD Leasing Activity (sf) 541,334 657,170 21.4%
DIRECT RENTAL VS. VACANCY RATESLEASING ACTIVITY
12.0%12.5%13.0%13.5%14.0%14.5%15.0%$22.00$22.50$23.00$23.50$24.00$24.50$25.002009201020112012Q1 2013
    p    s     f      /    y    r
DIRECT GROSS RENTAL RATEDIRECT VACANCY RATE
     1 .     9     2 .     9     2 .     4     2 .     1     0 .     6
0.00.51.01.52.02.53.03.520092010201120122013 YTD
    m    s     f
LEASING ACTIVITY
Q1 2013BALTIMORE, MD
OFFICE SNAPSHOT
 MARKETBEAT
A Cushman & Wakefield Research Publication

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