Area warehouse market stayed healthy in 1996 Vacancy rate dips amid new construction

Industrial real estate

December 07, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

The Baltimore area's warehouse market remained healthy in 1996, allaying concern about the impact of new distribution space scheduled to be completed in the coming year.

While the vacancy rate declined a percentage point to 11.2 percent for the year, the amount of space removed through leasing activity was up significantly, according to statistics compiled by commercial real estate firm Casey & Associates Inc.

The amount of space absorbed, or removed via leasing, shot up 38.5 percent in 1996 to 1.06 million square feet, Casey's figures noted. As a result, rental rates have either increased or held steady throughout the year.

"The fundamentals driving demand in this market continue to exist, and the consumer market here continues to be strong," said Matthew J. Ryan Jr., a Casey senior vice president.

"And we're starting to see manufacturers coming back to the market, as evidenced by the recent [John H.] Harland Co. deal for a new building in Anne Arundel County. It's adding another dimension."

By comparison, three years ago, the vacancy rate stood at 18 percent.

As in recent years, Harford County had the lowest vacancy rate in the metropolitan area, at 3.1 percent, while the amount of available space in Baltimore City was the highest, at 15.3 percent.

Anne Arundel County had the best performance in terms of leasing activity, garnering more than 60 percent of all absorption.

Ryan and others also contend that 1.5 million square feet of new, speculative distribution space -- roughly equivalent to five downtown skyscrapers -- will have little effect on the market because of sustained activity levels.

The 1.5 million square feet being developed by Manekin Corp., the Towle Group, Security Capital Industrial Trust, James F. Knott Development Corp., Nottingham Properties Inc., UPS Properties Inc. and others would raise the market's vacancy rate by 10 percentage points unless or until space is absorbed through leasing.

"The industrial real estate market, as evidenced by who is building and what they're building, is clearly the strongest sector in the state's economy right now," said Robert A. Manekin, Casey's president.

Investment interest in industrial properties also remained heavy, led by a $30.1 million sale of six Howard County buildings to Westmark Advisors, a Los Angeles-based pension fund adviser, and a $19 million purchase of the former Merry-Go-Round Enterprises Inc. distribution center in Harford County by the May Department Stores Co.

Still, at least a few analysts believe that the amount of speculative space being developed is excessive.

"We believe this market has room for about 400,000 square feet of new space," said J. Richard Latini, a vice president and principal of Colliers Pinkard, a local commercial real estate firm. "But more than three times that amount is being delivered onto the market. The question is whether there's enough activity to absorb that, and we just don't know."

"Overall, conditions have been healthy in 1996, but I have to question the sizes of some of the new buildings being built, because most of the larger requirements have been build-to-suit projects which have special demands associated with them," Latini added.

Ryan countered that leasing activity should remain strong because prospective tenants require 3.5 million square feet of space and suitable build-to-suit land is shrinking.

Pub Date: 12/07/96

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