Optimism built on occupancy

Renaissance: In downtown Baltimore, new structures fill up almost as fast as they're finished.

Commercial real estate

January 23, 2000|By Robert Nusgart | Robert Nusgart,Sun Staff

The sense of optimism about the future of commercial real estate in the Baltimore metropolitan area is as real as the steel and bricks being plied from Inner Harbor East to the Redwood Towers through the BWI Corridor and on to Columbia.

Energized by a new city administration, a continued dose of economic health and a fresh wave of Web-based companies pooling in older office buildings, the area has earned a right to be bullish for year 2000.

"The city is about to enter into a new renaissance in a variety of areas," said commercial real estate veteran Richard Manekin of the newly formed Manekin Bros. Abeshouse LLC. "Inner Harbor East is really maturing with the opening of the Marriott [Hotel], the additional office space that is being built there, the continuation of the Inner Harbor the Community College site as well as the expansion of the Power Plant.

"There is an emerging technology-related group of businesses that want a different type of space, more creative space. At the same time, there are emerging companies that are all over Anne Arundel and Howard counties."

According to commercial real estate consulting firms Delta Associates and Transwestern Carey Winston, the Baltimore/Washington office market was nearing the peak of its expansion phase midway through 1999, putting it ahead of such recovering markets as Philadelphia and New York and just behind Chicago.

"Everyone is feeling very upbeat," said Brenda J. Bodian, principal of BJB Realty Advisors and a former vice president for Struever Bros., Eccles & Rouse.

"If you look at where we are on a real estate curve, we are still on the upside. There are other cities that are beginning to plateau out, like Chicago, and some that are beginning to decline, like Houston. But we came out of the recession a little bit after those guys."

According to Trend Watch 2000, a survey conducted by The Allan L. Berman Real Estate Institute at Johns Hopkins University, the Baltimore office vacancy rate dipped to 9 percent, down from 9.8 percent at the end of 1998. More specifically, Bodian said the vacancy rate is about 4 percent along the Pratt Street corridor.

The Johns Hopkins survey also reported that 2.23 million square feet of office space is under construction in the Baltimore area, and through midyear 1999, 652,000 square feet had been completed.

On the horizon is One Light Street, a $120 million, 35-story office tower being developed by J.J. Clarke Enterprises Inc., with the leasing being conducted by Richard Manekin. The building, on the site of the demolished Southern Hotel, is progressing on schedule, according to Manekin, with occupancy expected in 2001.

Manekin considers One Light Street to be another link between the Inner Harbor and the business district, extending through the Charles Street corridor where Southern Management Corp. is converting Charles Plaza into a retail project that will carry as much as 80,000 square feet of new retail space.

All of that blends with an estimated $25 million worth of improvements slated for Charles Street this summer that will add brick sidewalks, new curbs and historic lighting to the area.

"I think [2000] will be a very positive year, very good. I think we are still on the upswing here and no indications in sight at all for any kind of downturn," Bodian said.

Yet, with a shrinking vacancy rate, companies searching the city this year for large office blocks may be frustrated.

"While some people might bemoan the fact that we don't have much [large office blocks], that has created some interesting new choices. So people like Arthur Andersen try a completely new approach to their office space," Bodian said of the accounting firm that moved into the Power Plant last August.

"Who would ever think a very conservative company would go for a very open office plan? More companies will take the opportunity to go into less traditional office space and that bodes well for Baltimore City."

Another encouraging factor is that rents are rising downtown, although not as radically as Washington and Northern Virginia, where they are pushing $50 a square foot.

Class A, full-service rents in Baltimore are topping out at $30 per square foot; Class B space is up from the mid-teens to the low-$20 range and B-minus space "is in the $10 to $14 range. They are definitely up from a few years ago," she said. Bodian also said the tenants coming into Class B space will continue to be upstart Internet companies. However, as their businesses succeed, they need larger spaces, which sometimes isn't available.

"The technical companies are growing very fast so they go into small space and usually B space because they can't afford A space. And they quickly outgrow it," she said.

And while there are opportunities in the city, the surrounding areas are enjoying substantial success as well.

Ed St. John, president of MIE Properties Inc. which primarily builds flex office space -- one-story office buildings with rear-loading components -- said he has never seen it better.

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