In January, Ed St. John did something most commercial real estate developers haven't been able to do for years.
He raised his prices. Not just a little, either: more like 15 percent to 20 percent.
"I did this saying, 'Let's do it and see if it holds,' " said the president of MIE Investment Co. of Catonsville. "And it has."
Mr. St. John could pull this off because he builds warehouses, which suddenly are the toast of the local real estate world. The wallflowers of the real estate industry's blowout 1980s dance -- those buildings along Interstate 95 -- are the belles this time around.
Vacancy rates for warehouses fell to 17.5 percent from 19 percent in the first half of the year, according to Casey & Associates of Baltimore. Competitor Colliers Pinkard said vacancies for some types of warehouses have fallen 9 percentage points in the last year.
And Timothy Cahill, broker for Casey & Associates, projected last month that the vacancy rate in "quality" warehouse space will be below 10 percent by the end of the year.
Time Warner Inc. is planning a $37 million warehouse project in White Marsh, and Starbucks Corp. will put a center nearly as big either in Belcamp or York, Pa.
Real estate brokers like Colliers Pinkard's Michael Elardo said more than a dozen companies are looking for a 100,000-square-foot-plus block of warehouse space near Baltimore.
Brokers say that space doesn't exist, meaning the industry is gearing up for new development. This time, though, the wave will be custom-made buildings for specific tenants such as Fila ,, USA, the Hunt Valley clothing company that announced in June that it will double the size of its warehouse in East Baltimore, or Alcon Laboratories, which just opened a new facility in Hanover, instead of the 1980s speculative deals that often led to foreclosure or worse.
Only three build-to-suit office buildings are under construction for private tenants anywhere around Baltimore, and two of them are doctors' offices, said Jeffrey B. Samet, research director for Colliers Pinkard. No first-class hotels. No malls. Just warehouses, more or less.
"The days of anyone leasing anything from MIE in the $2-a-square-foot range are over," said Jerry Wit, MIE's marketing director.
Warehouses were never hit as hard by the recession as office buildings and hotels. One big reason, said Alex. Brown Inc. real estate analyst Sam Hillers, is that it only takes about a year to build a big warehouse. An office building can take three years or more to plan, get zoning approval for and build. Warehouse developers don't have to look as far into the future to make their plans. That's why they didn't make nearly as many mistakes.
The future isn't without risk. The distribution business is changing fast, in part because warehouse users are trying to keep up with the need for just-in-time deliveries. Many new warehouses, such as Time Warner's project and The Gap Inc.'s facility in Edgewood, need much higher ceilings, ultra-flat floors and a much higher level of automation than traditional warehouses. As these projects take over the market, the future for older buildings is far from clear.
For now, however, the market is happy. There are four main reasons why. One is the resurgence of consumer-goods companies as the economy improves. The others are location, location and location.
"Forty to 45 percent of the new bulk space is retail support," said Richard Jones, vice president of Towson-based Nottingham Properties Inc., which is selling Time Warner the land for its White Marsh project. The Time Warner warehouse will distribute movie-themed clothing and other goods to Warner Bros. Worldwide Retail division.
Just last week, Woodward & Lothrop Inc. and Office Depot Inc. signed deals to lease local warehouses. Woodies will take over most of the 340,000 square foot Zamoiski building on Waterview Avenue in South Baltimore, bringing 200 or more jobs to town, while Office Depot will lease 125,000 square feet in Savage.
When national retailers decide they need warehouses, they often end up in Maryland because of its location. A truck can leave Baltimore and reach up to 40 percent of the U.S. population overnight. Land is also much cheaper in Baltimore than in other northeastern corridor markets like Washington, northern New Jersey and Connecticut.
"Tick off the big companies looking for space -- all of them are related to retail," said Robert Oare, a Columbia-based warehouse broker for Manekin Corp. "The downside is that any time one area or any state concentrates on one area of the economy, we take the risk that when retail slows down all the retail tenants will want to put [abandoned] space back on the market."