Office market here collapsed in first half of 1991 W.C. Pinkard study calls current commercial situation 'sobering.'

Commercial real estate

July 03, 1991|By Kevin Thomas | Kevin Thomas,Evening Sun Staff

Now, from the commercial brokerage firm of W.C. Pinkard Inc. comes confirmation that a lot of commercial real estate buildings out there that are short on tenants.

That may not be new news for those who have observed the increasing number of "see-through" buildings in the area or have had to cope with recession-driven high vacancy rates. But the situation is worse than even Pinkard imagined it would be.

In a report reviewing the local office market, Pinkard executives conclude that the first half of 1991 saw "a collapse" in the rate of office absorption. In fact, 336,000 fewer square feet of office space were occupied at mid-year than in January, a situation called "negative absorption."

"Although a decline in market activity was expected for 1991, its swiftness and its scale is sobering," the report states.

However, some parts of the metropolitan region fared better than others.

The Owings Mills and Rutherford areas, or Suburban West, led the market in absorption primarily because of two build-to-suit

projects -- a 60,000-square-foot headquarters at Owings Mills Corporate Campus for the French design and manufacturing firm Telemecanique, and a 110,000-square-foot building occupied by Blue Cross and Blue Shield of Maryland near the Owings Mills Mall.

Westinghouse and Digital Equipment gave the Suburban South Market a boost after a poor showing in 1990. In the first half of this year, Suburban South absorbed 136,000 square feet. Still, the market is showing more than 800,000 square feet of vacant space, a vacancy rate of just under 25 percent

Despite positive results in Suburban West and South, the rest of the Baltimore area countered with a dismal showing.

Downtown, Suburban North and Howard County lost more than 620,000 square feet of occupied space, the report says.

Downtown sustained the greatest loss, largely because of the departure of the Resolution Trust Corp. from the Shillman Building in the 500 block of North Calvert Street. That move returned 107,000 square feet to the market and created the area's largest single vacancy.

The vacancy rate for Class A downtown office space increased from 11.4 percent in January to 14.3 percent today, the report states. The vacancy rate for Class B office space downtown rose to 22.3 percent, from 19.8 percent in January.

Howard County had the highest vacancy rate in the area, hovering at 25 percent. A bright spot for Howard County is that no new buildings are expected to come on line this year to compete against those already doing poorly, the report states. The 168,000-square-foot Ryland Building, currently under construction in downtown Columbia, has a 1992 delivery date and is 65 percent pre-leased.

Traditionally strong Suburban North, which includes Towson, Hunt Valley and White Marsh, lost more than 200,000 square feet of Class A occupancy. That was due largely to the relocation of Blue Cross and Blue Shield of Maryland from Timonium to Owings Mills.

The vacancy rate in Suburban North -- 13.5 percent -- is the lowest in the Baltimore market, the report says.

Pinkard's overview focuses on a market in transition, from the boom of the 1980s to the bust of 1991.

"Overbuilding, white-collar job losses and a liquidity crunch are the prevailing realities today," the report states.

Moreover, weakened demand for space has forced developers into making concessions to tenants, in effect reducing project cash flow. The result is an upswing in Chapter 11 filings by developers, foreclosures by area banks and reliance on auction sales.

Despite the gloomy assessment, the Pinkard report projects that the second half of 1991 will see an increase in absorption.

The current vacancy rate for the entire area is 18.3 percent and should improve to 16.6 by the end of the year, if the Pinkard forecast is correct.

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