Retail market for real estate called stable Outlook less bright for 'mom and pops'

February 11, 1993|By Michael Dresser | Michael Dresser,KLNB Inc.Staff Writer

The Baltimore area's retail real estate market, which staggered through 1991 and much of 1992, has stabilized and is poised for a strong revival, according to a study released today by the commercial real estate firm KLNB Inc.

Most of the overbuilt retail space of the 1980s has been absorbed, but new construction remains at a standstill because of a lack of financing, the study said. As a result, KLNB said, demand is pushing vacancy rates down and rents up through most of the metropolitan area.

The KLNB study, the first in a planned twice-yearly series, concentrated on retail space found in non-mall, grocery-anchored centers with more than 50,000 square feet. KLNB broker Peter P. Jenkins, who conducted the study, estimated that such centers account for about 60 percent of the retail space in the market.

The study said the overall 5.4 percent vacancy rate in the metropolitan area "bodes well for our local economic outlook." However, the survey found that eastern Baltimore County, especially the economically ailing Dundalk-Essex area, is lagging far behind the rest of the area, with a 14 percent vacancy rate.

"When the economy sneezes, the east side gets pneumonia," said Robert C. Levin, a KLNB senior partner and a specialist in retail space.

KLNB found that the strongest markets are Howard County and northern Baltimore County, where the vacancy rate was 3 percent.

KLNB officials agreed the total retail vacancy rate in northern Baltimore County is actually larger because empty space at Hunt Valley Mall, notably the former Macy's store, was not included in the survey.

While the survey provided encouraging news for the local economy, it gave a grim assessment of the prospects for small, locally based retailers. Most of the small-store vacancies in anchored centers are being absorbed by strong national or regional chains, the study said. That leaves little available for smaller operators except small strip centers without anchors.

"The pinnacle era of the mom and pop retail store ebbs away with the close of each business day," the report says.

Competition is especially fierce for the so-called "big boxes" -- stores of 20,000 to 60,000 square feet -- which are in high demand because of an influx of "category killer" retailers, Mr. Jenkins said. In Howard County, for instance, the vacancy rate for large stores is zero, Mr. Jenkins said.

The scarceness of such sites is deterring some chains from expanding to Baltimore.

For instance, Filene's Basement, which announced plans yesterday to open up to four Washington-area stores this fall, bypasses Baltimore because it could not find enough suitable locations.

Despite signs of a revival in the market, traditional lenders are still gun-shy about new centers, the study says. Most of the money being spent on development now comes from real estate investment trusts (REITs), but even these increasingly active players are concentrating on renovating existing centers rather than building new space, KLNB reports.

One type of new development that can get financing, the report says, is the so-called "power center,"which generally brings together a group of well-heeled category-killers in a single development. The Price Club center in Glen Burnie, for example, includes a Home Depot and a Sports Authority.

However, construction of power centers has been stymied by a lack of suitably zoned land, said KLNB partner Larry Mekulski. "The supply has shrunken considerably since the last zoning cycle," he said.

That is not all bad, he said. One reason the retail real estate market is perking up more quickly than other commercial real estate is that the overbuilding never got as far out of hand as it did with office space, Mr. Mekulski said.

"We have always had a discipline imposed on us by the zoning laws," he said.

SPACE FOR RENT

The table shows the amount of Baltimore-area retail space in non-mall shopping centers of at least 50,000 square feet with grocery stores as anchors. KLNB estimates that this type of space accounts for about 60 percent of all retail space. Listing is in order of lowest vacancy rate to the highest.

.. .. .. .. .... TOTAL.. .. VACANCY.. .. AVG. RENT

AREA............ SPACE .. ..RATE .. .. .... .. ...

Howard Co... .. . 502,300.... .3%.. .. ... ...$15.00

N. Baltimore Co.. 1,717,600 .. 3% .. .. .. .. $14.75

Anne Arundel Co.. 1,019,000.. .4% .. .. .. .. $14.00

Baltimore City... 1,085,800 .. 4% .. .. .. .. $12.50

Harford Co. .. .. 940,000 .. ..4% .. .. .. .. $12.50

Carroll Co. .. .. 492,100 .. ..5% .. .. .. .. $10.50

W. Baltimore Co.. 356,700 .. ..6% .. .. .. .. $14.00

E. Baltimore Co.. 700,600 .. ..14% .. .. .. ..$13.50

TOTAL .. .. .. .. 6,814,100....5.4% .. .. .. .$13.34

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