In the first half of this year, the Baltimore metropolitan area not only failed to show any gains in office leasing but for the first time in recent memory suffered a net loss of tenants and leased space, an effect known as "negative absorption."
The biggest culprit for the downtown area? The Resolution Trust Corp., which abandoned the 107,000 square feet of Class B space it occupied in the Shillman Building in the 500 block of North Calvert Street.
The federal agency originally had leased the space to dispose of Baltimore Federal Financial, a thrift that failed in 1989.
There has been negative absorption in parts of the region before, said Jeff Samet, vice president of the commercial brokerage firm W. C. Pinkard & Co. Inc. "But we have never had the widespread lack of occupancy in the overall market that we're seeing here," said Mr. Samet, whose company released a midyear review of the office market in the Baltimore area.
The office glut was the result of the late '80s development boom that immediately preceded the current recession, commercial brokers said. In turn, the virtual standstill in leasing activity forced developers to grant concessions to attract tenants, which led to even worse cash problems. And the liquidity crunch of most real estate lenders has led to an alarming number of auction sales and developer bankruptcies, the agents noted.
"Although a decline in market activity was expected for 1991," the Pinkard report stated, "its swiftness and its scale is sobering."
The metropolitan area now has 336,000 more square feet of space available, not including new construction, than at the beginning of the year, according to the report, raising the vacancy rate to 18.3 percent from 16.6 percent in January. A total of 7.9 million square feet is now vacant or under construction, almost 900,000 square feet more than at the start of the year.
Downtown Baltimore suffered the biggest loss of tenants, as 194,000 square feet of Class A space and 168,000 square feet of Class B space became available. No new office space entered the market in that time, Pinkard reported.
Similar losses were seen in Baltimore's northern suburbs and in Howard County: A total of 620,000 square feet opened up in the three areas. Only the city's western and southern suburbs had "positive absorption," with a combined 286,000 square feet leased since January.
"I would say for the entire metropolitan area to have a negative absorption is distressing," said Andrew Chriss, vice president in charge of Manekin Corp.'s brokerage operation. Mr. Chriss noted that six-month figures should be examined with caution because a few big deals could skew the results.
The results of the area's real estate-based recession are less debatable: bankruptcies and auctions. The last six months have seen Chapter 11 bankruptcy filings by some of the area's major and projects and developers. And other projects, such as the Brokerage at Market Place downtown, and the 217 North Charles building, became the property of their lenders via the auction block.
Although Pinkard is "cautiously optimistic" about activity during the rest of the year, the firm noted that it is among a number of brokers and developers looking for alternative sources of income. Both Pinkard and Manekin have branched into asset management projects; Manekin signed a deal in May to manage more than 1 million square feet of space that Copley Real Estate Advisors of Massachusetts owns in this region.
And the Rouse Co. launched two major bids that would be virtually pre-leased before the buildings open: to construct a new home for a consolidated Health Care Financing Administration, now spread throughout the Woodlawn area, and to oversee the construction of the Christopher Columbus Center for Marine Research and Exploration at the Inner Harbor, a project for which Rouse is competing against Manekin.
"Developers are taking a long view," Mr. Samet said, "and are asking themselves, 'With the amount of vacant space we're staring at right now . . . what are the other types of activities we need to position ourselves to remain profitable?' "