Q2 2013 | industrial USE

BALTIMORE metro area

Industrial Market Report

Baltimore Port-Game Changer for Mid-Atlantic
regional overview
The Baltimore industrial market has performed strongly during the second quarter of 2013 marked with positive absorption and declining vacancy, on pace with the national trend which is enjoying 8 consecutive quarters of positive absorption. Nationally, Baltimore ranked 10th in overall net absorption of industrial product. Approximately 40% of the industrial product in the market is functionally obsolete, sparking new construction and spec development. Liberty Property Trust recently announced they will be building two spec buildings in Hanover for 243,500 sf, which will be the first Class A industrial development in a number of years. Ryan Commercial also plans to develop another 640,000 distribution building in Perryville where demands have been rising as large tenants such as Pier 1 Imports continue to lease more and more space in the area. Bulk distribution warehouse demand continues to be strong along the I-95 Corridor from the Port through Cecil County. In terms of distribution center development, “bigger is better” continues to be the trend for distribution warehouse space. The Port of Baltimore continues to be a driving contributor to the overall health of the industrial commercial real estate market in the Baltimore region. Baltimore’s port ranks 12th in North America on the volume of containers that can be received after completing Panamax preparations, doubling the capacity of containers that can be accepted and is only the second east coast port post-Panamax ready. Baltimore is set up to be a game changer on the east coast competing directly with New York who won’t be Panamax ready for another 2-3 years. However, the issue of how to distribute those containers once they are delivered has led to the construction of a CSX intermodal at Mount Clare in South Baltimore. Additionally, Sparrows Point where the former 3,300 acre Bethlehem Steel plant sits is being considered for a new shipping terminal as the region prepares for the influx of containers. The combination of high demand and a lack of new construction in the region have caused vacancy rates to drop continuously over the past several years. The national bulk industrial vacancy rate ticked in at 8.6% and is projected to fall under 8% by the end of the year. The trend of continued cap rate compression persists for Class A products with Class B slowly catching up. > Vacancy rate for bulk distribution space decreased from 10.3% to 9.7% as absorption went positive for the third consecutive quarter. > Vacancy rates for flex space decreased from 11.2% to 10.6% > Strong leasing activity is expected to follow new construction for Class A product as the “Flight to Quality” trend continues. > Average rental rates for bulk Class A & B space has changed very little, hovering around $4.50 psf for the past two years. > Average rental rates for flex Class A & B space slipped slightly to $10.95 psf after a marked increase at the end of 2012.

Net Absorption
(all product types)
Thousands

2,000 1,500 1,000 500 0 -500 -1,000 -1,500 -2,000
2009 2010 2011 2012 2013

Vacancy Rate
(all product types)
13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 2010 2011 2012 2013

market indicators
VACANCY NET ABSORPTION construction rental rate

Q1 2013

Q2 2013

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research & forecast report | Q2 2013 | INDUSTRIAL use | baltimore metro area

Distribution Warehouse Asking Rental Rates
$5.40 $5.20 $5.00 $4.80 $4.60 $4.40 $4.20 $4.00 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013

Flex Space Asking Rental Rates
$12.00 $11.50 $11.00 $10.50 $10.00 $9.50 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013

definitions
> Catalogued Inventory: > Market Area: > Vacancy Rate: > Net Absorption: > Average Asking Rent: Class Class A & B flex buildings over 10,000 sf and distribution warehouse buildings over 100,000 sf. This inventory includes a total of 1,349 buildings consisting of almost 139,000,000 square feet of space Baltimore City and the surrounding counties of Anne Arundel, Howard, Baltimore, Cecil, Harford and Carroll. Total vacant space divided by the total inventory. The difference in physically occupied space within a given time period. Weighted average rent per square foot, triple net

INVESTMENT SALES ACTIVITY
Property Address 6675 Amberton Drive 4 Center Drive 1300 Mercedes Drive 7100 Holladay Tyler Road 7600 Assateague Drive 1820 Portal Street TA Associates CBRE Global Investors First Potomac First Potomac Stop & Shop Supermarket Company, LLC First Industrial Realty Trust Seller buyer Terreno Realty SK Realty Management The Blackstone Group The Blackstone Group Mosaic Realty Partners Belt’s Realty Services sale date 6/12/2013 6/5/13 6/18/13 6/18/13 4/26/13 5/30/13 sale price Price/SF $16,650,000 $19,250,000 $16,401,515 $24,918,278 $33,075,000 $7,181,000 $47.76 $55.70 $55.66 $79.12 $42.68 $41.99 SF 186,610 sf 345,600 sf 294,673 sf 314,923 sf 769,542 sf 171,000 sf Submarket Rt. 1/BWI Howard Cecil County Hanover Bowie Route 1 Corridor Baltimore SE

LEASING ACTIVITY
Property Address 1822 Worchester Street 10611 Iron Bridge Road 3431 Benson Ave 1901 62nd Street 527 W. 29th Street 8839 Kelso Drive Lease Date Q2 2013 Q2 2013 Q2 2013 Q2 2013 Q2 2013 Q2 2013 Lease SF 19,920 sf 20,180 sf 20,304 sf 10,400 sf 14,100 sf 5,500 sf Lessee Baltimore Honda Boyz Cintas Corporation Goodwill Industries of the Chesapeake Architectural Ceramics, Inc Built Creative, Inc. MBR Construction Services Rate n/a n/a n/a $5.52 $4.00 $6.50 Type Warehouse Warehouse Flex Warehouse Warehouse Warehouse Submarket Baltimore SW Route 1 Corridor Baltimore SW Baltimore Northwest Baltimore Midtown Baltimore East

update: market comparisons Net Absorption
Submarket/County Howard County Prince Georges County Anne Arundel County Harford/Cecil County Baltimore East Baltimore SW Total SF 30,065,494 21,049,203 23,608,774 26,157,898 24,434,589 7,239,384 Vacant SF 3,910,238 2,918,897 2,162,695 1,530,598 2,866,661 966,956 Vacancy % 13% 13.9% 9.4% 5.9% 11.7% 13.4% Current Quarter (61,932) (97,382) 160,919 121,508 417,473 72,904 YTD 84,511 (177,826) (11,803) 747,525 213,194 166,356

New Construction
Current 32,000 112,994 0 0 0 0 Completed 42,620 40,980 51,120 0 0 0

Rental Rates
WH/Dist $5.01 $6.06 $5.10 $4.66 $3.88 $3.94 R&D/Flex $10.96 $8.92 $10.72 $9.84 $10.82 $10.05

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research & forecast report | Q2 2013 | INDUSTRIAL use | baltimore metro area

QUARTERLY COMPARISON AND TOTALS
Quarter Total RBA Vacant SF Vacancy % Current Q Absorption Current Construction Completed Deliveries Average Rental Rates

Q2 2013 Q1 2013 Q4 2012 Q3 2012

136,339,330 136,296,710 135,946,710 135,879,590

13,655,001 14,410,397 14,837,287 15,530,611

10% 10.6% 10.9% 11.4%

798,016 776,890 760,444 (255,547)

38,227 80,847 430,847 417,120

93,740 350,000 67,120 0

$5.70 $5.78 $5.63 $5.50

482 offices in 62 countries on 6 continents
United States: 140 Canada: 42 Latin America: 20 Asia Pacific: 195 EMEA: 85
• $2

Submarkets

Howard County The industrial market in Howard County straddles I-95 and Route 1. Major employers include Best Buy and Verizon. The industrial market represents over 30,000,000 sf of space. With the delivery of a 42,000 sf flex building in Maple Lawn, vacancy rates crept up to 13% from 12.6%, but are expected to decline again in the second half of the year. Recent transactions included the sale of the former Giant grocery store warehouse in Jessup. The 775,000 sf building sold for $33.075 million. Recall Total Management took 226,000 at 8901 Snowden River Parkway and Pepsi reportedly signed a 177,000 sf lease at 6751 Alexander Bell Drive. TA Associates sold Route 100 Industrial Park in Elkridge for $16.65 million. Prince George’s County Although Prince George’s county is not included in the Baltimore regional statistics, it remains an important and strategic location for the Baltimore area. PG County consists of 216 buildings and approximately 21,100,000 sf of space. Due to its proximity to D.C., it has a significant amount of Federal Government users, such as Andrews Naval Air Facility, NASA Goddard Space Flight Center, and the Food and Drug Administration. At the end of the 2nd quarter of 2013 almost 2,900,000 sf of that space was vacant, equivalent to a vacancy rate of 13.8%. Recent transactions include Recall which renewed at 9900 Fallard Court in Upper Marlboro for 224,818 sf, and PSAV which signed a 21,056 lease at 10101 Senate Drive in Lanham. Though construction has been down, 41,000 sf of flex space is due to deliver this quarter. Anne Arundel County The industrial and flex market in Anne Arundel County is adjacent to Howard County and consists of over 23,600,000 sf of space. Major employers include Fort George G. Meade, Under Armour and the National Security Agency. Due to its proximity to the coastal areas and Chesapeake Bay, development of new projects in this area is tightly regulated and there are very few projects under construction, though 809 Pinnacle Drive in Linthicum was scheduled to deliver this quarter, the first new product since the third quarter of 2010. Liberty Property Trust announced they would break ground on two new Class A industrial buildings in Hanover that should be delivered by the end of 2013. Net absorption rebounded this quarter with an ending vacancy rate at 9.1%, a slight improvement over Q1 2013.

Harford/Cecil counties The Harford and Cecil County submarket spans the I-95 & the Rt. 40 corridor up to the Delaware line and represents over 26,100,000 sf of space. A few major employers in this market include General Electric, Bob’s Discount Furniture, Clorox Sales, Rite Aid, Proctor & Gamble, as well as Restoration Hardware. Pier 1 recently took an additional 350,000 sf of space bringing their total amount in Harford County to nearly 1 million sf leased. 4 Center Drive in Cecil County sold to SK Realty Management. The 345,600 sf facility is currently leased to GSA and Herr Foods. With the expansion of the Port of Baltimore, there is continued optimism for industrial developers to prepare pad ready sites in 2013. At the end of the 2nd quarter more than 1,500,000 sf of space was vacant, equivalent to a 5.8% vacancy rate which is dramatically lower than the 13.4% vacancy at the end of 2011. Baltimore East This submarket encompasses the northeast and southeast portions of Baltimore City, as well as the eastern portion of Baltimore County. Major industrial users for this area include Middle River Aircraft Systems, General Motors Allison Transmission, DAP Products, and W.R. Grace. This market contains over 24,400,000 sf of industrial and flex space. The vacancy rate declined this quarter to 11.7% after 5 consecutive quarters of rising, thanks to the first significant quarter of positive absorption since 2010. Recently the Nelson Company, a pallet distributor, leased 38,400 sf at 4517 N. Point Boulevard. HD Supply just leased 1006 Middle River Road for 36,900 sf. Baltimore Southwest The Southwest Baltimore submarket includes properties within the city’s Central Business District, Midtown, as well as Woodlawn and Catonsville. This smaller submarket contains approximately 7,300,000 sf of space. The expansion of the Port of Baltimore will likely have a positive effect for this submarket in 2013 as evidenced by the declining vacancy rate ending the quarter at 13.4%. Major industrial users include Veolia Transportation, Price Modern, Federal Express and UPS. Goodwill Industries of the Chesapeake recently took 20,304 sf on Benson Avenue and Maryland Moving announced they signed on for 12,000 sf at Merchant Drive.

billion in annual revenue

• 1.12

billion square feet under management 13,500 professionals

• Over

researcher: Nadia Kahler Vice President, Research & Transaction Management | Baltimore 100 North Charles Street Suite 1710 Baltimore, MD 21201
tel +1 443 543 1222 FAX +1 443 543 0191

This document/email has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy as to the accuracy of the information. This publication is the copyrighted property of Colliers International and/or its licensor(s). ©2013. All rights reserved.

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