Property dealings seen as a good sign

Leasing of commercial real estate shows market is on the mend, some say

Howard County

May 20, 2002|By TaNoah Morgan | TaNoah Morgan,SUN STAFF

After five straight quarters of slowing, and a vacancy rate of 16.5 percent, local observers of the commercial real estate market in Howard County say they are seeing the first signs of recovery.

Within the past month, companies have gobbled up 150,000 square feet of office space in the Columbia Gateway office park, and deals have picked up at the Troy Hill flex office complex near Route 100.

But most local brokers aren't ready to break out the champagne just yet; lower-priced subleases are putting pressure on the market, and the slump affecting the telecommunications industry and a few others could put Howard's market in line for another dip.

"There's still quite a bit of space here, both flex and office," said Thomas W. Greene, an agent with KLNB Inc.

He reports "no significant movement in terms of net space that's been absorbed," he said. "I think [it's] around 65,000 [square feet] for the year, and that's not much when we're moving toward the halfway point" of the year.

But one county official said the recent activity is a sign of business growth.

"There are some significant deals out there, some bigger than 100,000 square feet," said Richard W. Story, executive director of the Howard County Economic Development Authority.

In recent weeks, Corporate Office Properties Trust has lured Carefirst BlueCross BlueShield and Washington Mutual to One Gateway Exchange, their newest building in the Gateway complex, that opened last fall with no tenants. The building is 57 percent leased, according to COPT President Randall M. Griffin.

Community First Financial and Allstate Insurance Co. have also moved into Gateway.

Smaller office space available in flex buildings - one-story buildings that can be used as office space or as a warehouse - has also had a difficult time attracting clients, so much so that MIE Properties Inc. stopped construction on a four-building flex complex in Troy Hill until it could sign leases to fill the first two.

Liberty Property Trust did the same on its flex project at Columbia Crossing, stopping construction at three of four buildings it had planned. But the property is nearly 72 percent leased, according to Liberty's regional vice president for Maryland, James K. Flannery.

MIE vice president of leasing Robert Becker said he's added three tenants to his buildings, and the property is 34 percent leased.

"We're optimistic we'll have a few more," Becker said.

But even with those spaces being leased, the market is under pressure because of the amount of subleased space that is available, observers say.

"There's some big users that have put a lot of space back out on the market - Corvis, Aerotek," Greene said. "It looks like their business is suffering."

Fiber-optics maker Corvis Corp. has given back more than 150,000 square feet of space in the county, and staffing company Aerotek, a subsidiary of Allegis Group Inc., also has vacated about 150,000 square feet, sources said.

Competitive local-exchange carrier e.spire, which has about 100,000 square feet in its support center in Gateway, is being liquidated by auction this week, threatening to return all of its space to the market.

According to the Economic Development Authority, the vacancy rate for office space in Howard County has been climbing since the first quarter of last year, when it was just below 7.5 percent.

It peaked the first quarter of this year at 16.5 percent - the highest it has been in 10 years.

"We said in our earnings call we didn't think Howard County would stabilize until the middle of 2003," said Griffin of COPT. "[There's] about a year and a half's worth of space on the market, if things are going the million-foot-a-year level. If it's not, you could have three years of supply."

But some observers say they are confident the worst is over.

"I think we have absolutely seen the bottom," said Robert A. Freedman, senior vice president of Ryan Commercial LLC.

"It seems like it's only going to get better," he said. "Six months from now, this is all a nonissue. We're back in great shape."

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