Metropolitan Baltimore's office vacancy rate jumped to 22.24 percent at the end of 1991 as tenants moved out of more office space than they moved into for the first time in years, according to a study by Baltimore-based W. C. Pinkard & Co.
The report mirrors a profoundly pessimistic local commercial development industry. The study's author and other commercial real estate brokers said they don't expect to see another new office tower built in Baltimore until at least 1996 -- and maybe later.
"Basically, because of the availability of downtown space, the current downward pressure on lease rates is such that you can't support new construction," said Jeffrey B. Samet, vice president of W. C. Pinkard, a downtown-based real estate brokerage and property management firm.
The vacancy rate includes both existing vacant space and space that is now under construction, the study said. The vacancy rate was 19.85 percent at the end of 1990.
How long the construction market stays silent "is going to be a function of how quickly the economy rebounds," he said.
A national study released yesterday said the problem W. C. Pinkard sees isn't limited to Baltimore. KPMG Peat Marwick, a major accounting firm, concluded that real estate development and new construction will be at a standstill in most parts of the United States next year, reflecting the recession and an imbalance of supply and demand for office space.
The KPMG Peat Marwick study suggested it will take two to three years to work out the national imbalance as well.
"The biggest problem in the industry today is that there's just too much unoccupied space and no demand for it," said Roger L. Johnson, national director of the accounting firm's real estate activities.
"Until the economy improves, we cannot even begin to fill up the existing supply of office space, housing, retail shops and hotels, let alone contemplate new development."
Mr. Samet said the local market will have to rent more than 1.2 million square feet a year for three years just to pull vacancy rates to 12 percent. In 1991, the market rented a net of negative 245,000 square feet, the study said, down from an average of a positive 1.7 million square feet during the boom years of the late 1980s. The losses -- which mean tenants moving out of more space than they moved into -- were all in the first half of the year, however, which Mr. Samet said was a hopeful sign.
But other specialists said commercial real estate is likely to lag behind the general economic recovery, making it almost impossible for the Baltimore market to lease the 3.7 million square feet it would take to pull vacancy rates to 12 percent.
"It's just not going to happen," said J. Joseph Casey, president of Casey & Associates, a brokerage firm that competes with W. C. Pinkard.
"I don't know if you can absorb that much space over three years [either], because of the condition of the economy, especially the service sector," said Robert A. Manekin, senior vice president of Manekin Corp., a development and brokerage firm with projects throughout metropolitan Baltimore. "The motto is, 'Stay alive til '95. . . . You won't find any financial institution willing to fund speculative development for at least three years."
Mr. Casey said many major tenants have extra space -- space where people they have laid off used to work, for example. Even when the economy picks up, those tenants will fill up their extra space before leasing more, he said.
Mr. Manekin said a long real estate shakeout could cripple even developers who have stayed fairly healthy to date. As banks resell properties they have repossessed at a discount, he said, the new owners will be able to undercut developers whose projects have survived the first wave of foreclosures.
"You're going to see even greater dislocation," he predicted.
There are only two major new speculative office projects scheduled to open next year in the metropolitan area, Mr. Samet said. Most new buildings are built at the specific request of a major tenant -- such as the Ryland Group headquarters in Columbia and the new federal office building downtown.