Commercial industry expects rebound in 1995 REAL ESTATE

January 01, 1995|By Kevin L. McQuaid | Kevin L. McQuaid,Sun Staff Writer

"Stay alive until '95" became the unofficial commercial real estate mantra three years ago, when battle-weary developers ravaged by increasing vacancies, declining rents and lenders eager to foreclose grasped for any signs of hope, however distant or invisible.

The declaration was based on the theory that the industry's free fall would have largely subsided by 1995.

By most accounts, the prediction has come true.

And for those fortunate enough to stay alive until now, 1995 is expected to be a fruitful year.

Vacancy rates for both office and industrial space in the Baltimore area have dropped to their lowest points in five years, a retail sales surge has provided malls and other shopping outlets -- as well as supporting distribution -- with tremendous gains, and rental rates are beginning to point upward.

Those factors and the general economic resurgence will translate into a further rebound in the coming year.

The level of industrial activity, combined with notable projects such as Time Warner Inc.'s $37 million distribution center in White Marsh and Goldwell Cosmetics (USA) Inc.'s planned $25 million headquarters and distribution hub in Anne Arundel County, lead many analysts to believe that speculative warehouse building will occur in 1995 for the first time in five years.

"We're looking at a vacancy rate of under 5 percent for industrial space early in 1995," said Robert Z. Smith, a vice president of KLNB Inc., a leading industrial brokerage firm.

"And rents are nearing the same point they were at during the market peak in 1988."

While the local office market should continue to sustain its slow recovery, some sectors will fare better than others.

"Downtown will continue to be difficult," said Randall M. Griffin, president of Constellation Real Estate Group, a Baltimore Gas and Electric Co. subsidiary that controls a $400 million portfolio.

Despite a dearth of large, contiguous blocks of space of 50,000 square feet or more, little or no new office construction is forecast, primarily because of further anticipated corporate downsizing.

In many respects, Baltimore-area trends mirror those nationally, according to a 1995 outlook by Landauer Real Estate Counselors, a New York-based consulting firm.

From an investment perspective, the national outlook favors suburban office buildings, industrial projects and hotels, which are recovering from a long slump.

But investors will continue to look for current cash flow and not long-term appreciation.

Baltimore's sales activity will be driven largely by pension fund and entrepreneurial money.

The sale of Dulaney Center in Towson for $17 million and the BWI Marriott's $22 million purchase by HEI Hotels Inc. serve as recent examples of what is to come.

Landauer also predicts that real estate investment trusts, which have raised in excess of $25 billion since 1992 and have had a great impact in Baltimore, will cool off in the coming year and that the rise in interest rates will hamper -- but not kill -- activity.

"Recovery is a process, not an event," Landauer noted.

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