Building activity drops dramatically in 1990

OFFICE CONSTRUCTION

May 06, 1991|By David Conn

If there's a recession going on, nobody invited Peter and Beth Horowitz, president and vice president of EVI Inc.

A month ago, the husband and wife team moved their electronics and communications firm from the Rivers Center in Columbia to the Columbia Gateway Business Park, nearly doubling their space to 16,000 square feet.

The 20-employee firm, which does some government contracting, was "falling all over" itself in its old location, said Mrs. Horowitz. "Every business has a cycle and a time," she said, "and it was our time to move."

The mood was closer to "time out" for the rest of the area's office leasing market last year. Office construction activity fell sharply in the Baltimore metropolitan area in 1990, and absorption of office space wasn't far behind.

But now some agents are reporting that construction and leasing activity is beginning to pick up. And besides, the bad news for developers and leasing companies has meant good news for tenants, the buyers in today's buyer's market.

"It's a good time," Mrs. Horowitz said. "There's a lot of developers out there who are willing to talk to you, on your own terms." That translates into rent concessions, favorable deals for upgrades and other amenities that aren't available during a seller's market, she said.

The main factor that drove -- or more accurately, stalled -- the office leasing market last year was a scarcity of new space to sell. New office construction in 1990 fell 59 percent from the year before, while total absorption of office space dropped 31 percent, according to W. C. Pinkard & Co. Inc.'s 1990 Office Market Review. The two factors helped push the metropolitan area's vacancy rate down slightly, to 16.6 percent from 16.8 percent in 1989.

Those trends -- more space leased than built, but both levels down from the year before -- held for every market in the metropolitan area except one. Only in the southern suburbs of Baltimore did new construction outpace the activity of previous years. And it did so with a bang.

Developers brought more than half a million square feet to the market, "just as the market bottomed out," according to the Pinkard report. Where the area around Baltimore-Washington International Airport accounts for only 10 percent of the entire metropolitan area's square footage, it added 51 percent of the new construction in 1990.

And while those suburbs absorbed 143,310 square feet in 1988 and 196,474 square feet the next year, 1990's total was a monumental 4,752 square feet.

"The result was that the vacancy rate soared from 14.6 percent in 1989 to 28.8 percent today," the Pinkard report said.

One of the major reasons for those skewed numbers was a 250,000-square-foot 10-story building that the KMS Group opened last year in its National Business Park near Fort Meade. BTR Realty also opened the 119,000-square-foot Gateway International Phase II.

What little activity there has been in the southern suburbs was "what I call shuffling of space," said Robert Oare, sales manager for the Manekin Corp.'s Baltimore-Washington corridor office in Columbia.

For the most part, Mr. Oare's clients have been consolidating space, moving out of Class A buildings and into one- and two-story office parks and research and development buildings, and saving 20 percent to 30 percent on their rent.

"I have not seen as many tenants growing this year as in past years," Mr. Oare said, "and that's a general reflection of the economy."

The feverish pace of construction near the airport was the exception last year, not the rule. More typical, although a bit extreme in the other direction, was downtown Baltimore's Class A office activity last year.

For the first time in six years, there was no new Class A office space added to the downtown Baltimore market, according to the Pinkard report.

As a result, the Class A vacancy rate fell to 11.4 percent from 14.5 percent the year before, with 206,000 square feet absorbed. Most of that space was leased in three recently completed buildings: the Bank of Baltimore (110,000 square feet leased last year), St. Paul Plaza (81,000 square feet), and Equitable Bank Center II, which picked up the Health Care Corp. of America in a rare move downtown from the suburbs (White Marsh, to be exact).

Although there has been some leasing activity this year -- Westinghouse took 25,000 square feet in one of the Airport Square buildings built by Dickinson-Heffner Inc., and Digital Equipment Corp. leased 22,000 square feet in BTR Realty's Gateway International Phase II building, also near the airport -- Pinkard officials say 1991 so far looks a lot like 1990.

"The market just continues to remain slow since the year-end report," said Jeffrey Samet, vice president of Pinkard.

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