Optimism rises with 2 deals to fill warehouses

New tenants are found for suburban facilities

Balto., Harford counties benefit

Some large buildings remain on the market

October 27, 2002|By Meredith Cohn | Meredith Cohn,SUN STAFF

Two big warehouse deals in the past few months have been fueling optimism in the region that tenants will eventually be found for the rest of the empty boxes, whose unflashy concrete shells belie their economic importance.

Prospects for the sprawling warehouse left behind when Warner Bros. Studio Stores went out of business at the end of last year appeared dim in a weak economy, with few businesses looking to move or expand. The building off Interstate 95 in Baltimore County was for sale for almost a year after Warner Bros. said it was leaving.

But last month the building found a buyer, Charming Shoppes Inc. And earlier in the summer, Pier 1 Imports took over an empty 345,000- square- foot warehouse near Aberdeen.

A few developers are going ahead with new buildings that can hold truckloads of food, furniture, clothes and automobile parts.

"Two large blocks of space were taken off the market, and over the next six to nine months we'll see a quiet absorption of the rest of the space there is now," said David P. Scheffenacker Jr., head of Preston Partners, a real estate firm. "But all of a sudden, people won't say it's hotter than firecrackers. It will be slow and quiet."

The two deals have helped push the vacancy rate down to 10 percent to 12 percent of the region's 85 million square feet of industrial space. That's compared with about 15 percent several months ago, which was the highest in years.

A few other large buildings remain on the market. Fila USA, the U.S. unit of the Italian sportswear and athletic shoe company, owns two warehouses in Anne Arundel County but uses only one. Grocery operator SuperValu has an empty warehouse in Harford County.

Brokers and economic developers say that although fewer tenants are looking this year and deals are taking longer, the warehouse market has held up better than the markets for offices and technology space. Few are worried about finding tenants for the bulk of the space.

Some available warehouses are outdated or too poorly situated to lure tenants willing to pay top dollar or move in at all. Tenants are looking for high ceilings, wide column spacing and modern sprinkler systems that allow them to stack goods almost to the ceiling.

They are also looking for easy highway access and availability of port and rail service - elements that have long made the Baltimore area popular among industrial users that need to get products to destinations along the East Coast and within the Baltimore-Washington region, said H. Frances Reaves, a senior business development executive at the state Department of Business and Economic Development.

The state lists manufacturing, transportation and distribution as target industries in marketing materials, but Reaves said, "We don't pursue trucking terminals" that don't necessarily provide a lot of good jobs.

Scheffenacker likened warehouses to the "crazy aunt in the attic with a very nice will. You have got to keep her around, but you don't bring her out a lot. She's not that pretty or flashy, but she serves a purpose."

Modern amenities

The former Warner Bros. warehouse's modern amenities and location were the keys to attracting Charming Shoppes, which bought the building to store apparel for its plus-size clothing chain, said William M. Pellington, a vice president and industrial specialist at CB Richard Ellis, who brokered the sale.

He said not a lot of top-tier buildings are left on the market. Unlike in past recessions when a flood of new buildings sat empty, just a few developers have ventured into new construction this year.

"If the economy rebounds and you're there with product, then you're a genius," Pellington said. "But if it sits for two years, then you're subject to second-guessing. It take 12 to 18 months from start to delivery of a building, and some people want to start projects in anticipation of the market rebounding. But it's really hard to read the market that precisely."

The 10 percent plateau

Pellington said construction typically starts when the vacancy rate dips to 10 percent. The region is not quite there.

Of the developers jumping in, most started their projects before the market turned south.

Manekin LLC, built two buildings in Troy Hill Commerce Center in Howard County and has had some leasing success. Recently, Ferguson Enterprises took 70,000 square feet. That leaves about 230,000 square feet of space.

Creaney & Smith Group decided to go ahead with warehouses planned two years ago in Swan Creek Distribution Center in Anne Arundel County. However, C. Patrick Creaney, a company principal, said the project has been modified since the economic slowdown. One big building became two smaller ones, and the second will not open until spring.

"People tend to be looking for smaller-scale space," he said. "There aren't a lot of 300,000- square-foot users. But there are people looking and not a lot of places for them to go. This market is not as overbuilt as Northern Virginia or South Jersey."

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