Analysts paint gloomy picture of area economy

November 28, 1990|By David Conn

Area bankers, real estate developers and federal contractors can enjoy one small piece of good news from a group of industry analysts yesterday: It probably won't get a whole lot worse than it is now, and if it does, it probably won't last too much longer.

Aside from that, forecasts from three analysts painted a gloomy picture of three major segments of Baltimore's economy at a breakfast seminar sponsored by the Greater Baltimore Committee.

"The Baltimore region is losing market share with respect to defense and non-defense spending," Stephen S. Fuller, a George Washington University professor, told about 200 business people at the Hyatt Regency Inner Harbor Hotel.

"For some reason, we're not as competitive as we used to be," said Dr. Fuller, chairman of the urban planning and real estate development department.

With federal contracting one of the strongholds of Maryland's economy, the effect of a decrease in total federal purchasing since 1986 resonates throughout the state.

In 1986, federal purchases nationwide amounted to $205.7 billion, Dr. Fuller said, $6.78 billion of that in Maryland. The amount spent in the state rose slightly in 1987, to $6.93 billion, and has fallen each year since, reaching $6.19 billion last year.

The Baltimore area, meanwhile, has taken the brunt of the cuts in both defense and non-defense purchasing. From 1987 to 1988, the metropolitan area suffered a 15 percent decline in total federal purchasing, and in the next year it lost 21.2 percent more.

Dr. Fuller found an encouraging sign in an informal survey of defense contractors in the Maryland suburbs of Washington. About 85 percent of the respondents said they are selling a wider variety of products, not strictly defense-related, to the federal government than in 1980. About 80 percent said they are now selling their products to non-federal buyers.

For real estate agents and developers, the boom of the 1980s clearly is over, said Gary G. Dewey, vice president and general manager of Baltimore's Coldwell Banker Commercial Real Estate Services office.

The market outlook of Coldwell Banker's downtown Baltimore office found "underlying strengths, which cannot be easily dismissed," in a market that "presents many unique opportunities to be capitalized upon."

However, it is clear is that there has been very little activity in Baltimore this year, Mr. Dewey pointed out. In 1990, for the first time in years, absolutely no Class A office space became available in the city.

The stagnant year followed six years of fervid development activity, including 603,000 square feet of new space last year and 367,000 square feet in 1988, Mr. Dewey said.

Office rents, steady at about $24 a square foot for Class A space, have "fallen off the table" in the last year, according to the Coldwell Banker market outlook.

Rents currently are about $18 a square foot, and Mr. Dewey said many landlords effectively are lowering rates even further by signing generous leases requiring no rent for the first year in multiyear contracts.

The market outlook predicts that rents will begin to recover and that landlord concessions will subside within the next 12 to 18 months.

The same outlook could be applied to the banking industry, which is going through "an extraordinarily difficult time," said Kyle Prechtl Legg, a banking analyst at Alex. Brown & Sons Inc.

Nationwide, bank stocks have fallen 55 percent this year alone, she said, a dramatic departure from the mid-1980s.

It's no coincidence that banks are suffering at the same time the real estate industry is, Ms. Legg said. "Among the 65 banks that Alex. Brown follows, 10 percent of loans on their portfolios are non-performing," and that number should increase as the apparent recession plays itself out, she said.

The near-term outlook for Maryland's banks "is bleak," Ms. Legg said, but she added that "this is an inherently strong market and it will come back," although probably not sooner than a year from now.

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