Metropolitan Baltimore's office vacancy rate climbed above 20 percent during the first half of the year, but there are some reasons to hope that the devastated market is close to a bottom, one of the city's leading commercial real estate companies reported yesterday.
The region's overall vacancy rate climbed to 20.5 percent from 19.1 percent at the end of last year, according to the report by W. C. Pinkard & Co. That compares with a rate of about 10 percent reported in a similar study at the end of 1985 by Manekin Corp., a development and brokerage company that competes with Pinkard.
The biggest jumps in vacancy rates came in the northern suburbs, previously the area's healthiest office market, as cutbacks in Hunt Valley by Westinghouse Electric Corp. and Ferranti Health Care Systems put previously occupied space back on the market. Vacancies in the northern suburbs jumped to 19.98 percent from 13.86 percent at the end of 1991.
The increased vacancies to the north were compounded by the opening of the Towson Commons project, which added 190,000 square feet to the market. The project is 15 percent leased.
Pinkard warned that the news will continue to be bad for corporate real estate for the next six months, as CSX Corp. moves out of 100,000 square feet of downtown offices and Westinghouse vacates buildings south of the city to move into its soon-to-open building near Baltimore-Washington International Airport.
But Jeffrey B. Samet, the Pinkard executive who wrote the report, said the end of 1992 may mark the end of the downturn and the beginning of a slow recovery.
"Major [negative] events are still going to happen -- you have to account for that -- but more people are in the market," Mr. Samet said. "The sense is that there is more activity. Some of that will show up in the year-end numbers."
Mr. Samet said it is also a positive sign that few new buildings are on the way. Buildings opening this year, including Towson Commons and the soon-to-open Commerce Place building downtown, began construction before the recession took its full toll on the office market.
Once the recession's depth became clear, developers stopped building, and Mr. Samet said that will give the market some breathing room to begin recovering.
But, he cautioned, "clearly it's going to take a sustained economic recovery" to get vacancy rates down to a comparatively healthy 12 percent regionwide.
Even with that caveat, Pinkard's conclusion may be optimistic, Mr. Samet's counterpart at another regional brokerage said.
"I find that tough to swallow," said Tim Jackson, director of research and lease management at Casey & Associates in Baltimore. "A lot of things are going on out there, and they are still happening. What is going to make them stop?"
Getting the regional vacancy rate to 12 percent would mean leasing 2.9 million square feet of office space, the equivalent of more than six USF&G towers and would demand the creation of about 11,500 jobs, Pinkard said.
In the local market's best years during the 1980s, 2.9 million square feet was a little bit more than a year's worth of leasing. But in 1991, tenants actually moved out of more space than they moved into. That pattern persisted, although at lower levels, in the first half of 1992.
Mr. Jackson said prospects are grim for a return to the boom levels of 1985-88.
"We're not on the uphill swing," he said. "We're not going to see that any time soon."
Mr. Samet agrees that the recovery will need to be a sustained affair to cut the vacancy rate.
"W. C. Pinkard & Co. Inc. is realistic about the time frame that will be required to restore market balance," his report said. "A strong, sustained economic recovery will be necessary to help trigger the growth of the Baltimore economy and consequent improvement in the metropolitan office market."