Vacant Office Space Leaves Developers That Empty Feeling

Agents Seek Tenants For New Lease On Life

December 17, 1990|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Office vacancies, which have jumped in the county because of the mid- to late-1980s building boom coupled with this year's recession, won't fill up any time soon and might even increase by year's end, commercial real estate agents predict.

Agents and developers expect the county's commercial building slowdown to continue for at least a year, especially in new, speculative office buildings, while the market absorbs available space.

Some builders have continued developing office parks at scattered sites, while others plan to start filling a growing need for warehouses.

Since 1984, the amount of office space in the county has shot up from 2.2 million to 10 million square feet, the Baltimore Regional Council of Governments reports. The highest concentration of space, approximately 3 million square feet, surrounds Baltimore-Washington International Airport, Legg Mason Realty Group statistics show.

During the first half of this year, nearly 500,000 square feet of new office space opened in the BWI area alone, representing more than half of all construction in the metropolitan area. The new space, combined with slower leasing, caused the vacancy rate in North County to jump to 22 percent from 14.6 percent at the end of last year, according to the commercial real estate firm W. C. Pinkard & Co.

End-of-year vacancy rates for the airport area are expected to hover around 25 percent because of a slowdown in the defense industry and its ripple effect on companies located near Westinghouse and the National Security Agency, and because of the "timing of (new office) delivery in conjunction with the down cycle in the economy," said Jamie Smith, Pinkard vice president.

"The developers who decided not to build made wise decisions, and those who elected to build, unfortunately, got caught at the end of a boom cycle," Smith said.

Some of the larger projects that opened this year include: * A 12-story, 250,000-square-foot office that opened in August in the National Business Park along with two smaller buildings, totaling 150,000 square feet, which opened in February at Baltimore-Washington Parkway and Route 32. The high rise stands virtually empty, just 1 percent leased.

The developer, KMS Group, has leased 19,000 square feet in the two smaller buildings, "with a couple other deals in the pipeline," said J.

Richard Uhlig, senior vice president of KMS, a subsidiary of Baltimore Gas and Electric Co.-owned Constellation Holdings.

"In our business, we need to look ahead two years from the time we make a commitment and try to guess what the market conditions will be like two years hence," he said. "Sometimes all of us make decisions to build on speculation while only half of us should have decided to build. But I'm reasonably encouraged the demand side has held up fairly well."

Lynn D. Palmer, project locater in the county Office of Economic Development, also has seen no drop in demand.

"We're getting calls all the time," Palmer said. "We're as busy as ever.

People might be looking longer and harder, but there are still plenty of businesses who are at the point where they need to look or expand."

* Phase II of Gateway International in Linthicum, a 112,000-square-foot building completed in September. F. Patrick Hughes, president of BTR Realty Inc., said he has no tenants, only "leads" for potential tenants to lease 20 percent of the space.

The developer completed an 87,000-square-foot story building in December 1987 at Gateway and leased 95 percent of it in 18 months.

The leasing schedule for the new building has fallen behind by no more than a couple of months, Hughes said, partly because all at once more space than ever before has opened in the area and partly because of the time of year.

"The office market dies in November and December," Hughes said. "Nobody makes decisions about moving their office. It's budget time, and much is unsettled."

Eventually, BTR plans to build a third structure and a hotel on the 36-acre Concourse Drive site. But that won't happen for at least three years and not before the company has leased 90 percent of its space.

"If a year from now it's the same, I'll say something is wrong, but I'm not ready to open a vein," he said.

* A 63,070-square-foot, three-story office building at Parkway Corporate Center, at Dorsey Road and the BW Parkway, which got its first tenant a week ago. That tenant, with another expected soon, will occupy 10 percent of the space.

"I would suspect that within the next eight months it will be substantially leased," said David Paulson, vice president for marketing of Parkway Cos.

Parkway went ahead with construction after studying the market and finding a need for a building that uses space efficiently and saves tenants' money, he said.

"When this building is 60 percent leased, we'll test the waters again and decide whether it's the right time to start the next building," he said.

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