Leasing becomes tough sell

Perks to brokers rise as vacancy rate of office space grows

July 16, 2008|By Lorraine Mirabella | Lorraine Mirabella,Sun Reporter

As businesses have delayed or halted expansion plans, office landlords are going to great lengths to get commercial brokers to at least visit their buildings, even without tenants in tow.

Brokers who represent potential tenants are being paid cash just for showing up at broker events - the commercial real estate version of an open house - in hope of leasing office space in a slow market. Some landlords are raising commissions, offering gift certificates or treating brokers to lunch.

The flurry of broker perks is just one more sign of an office slowdown. In metropolitan Baltimore, vacancy rates are rising at a time when construction is wrapping up on many projects started during the real estate boom. As of June 30, the Baltimore market's vacancy rate had increased to 15.5 percent, up from 15.2 percent in January and above the metro area's long-term average of 14.9 percent, according to Colliers Pinkard's midyear office market analysis.

"The office market is basically reflecting a slowdown in the general economy, and the Baltimore market has been slowing now for the past 18 months," said Jeff Samet, a senior vice president and principal at Collier Pinkard in Baltimore. "Companies are cautious in making any new lease commitments and are focusing on operations. As top line growth slows, they have to undertake those measures that will help preserve their bottom line."

Submarkets in the Baltimore metro area had vacancy rates in midyear that ranged from 11.59 percent in the greater Annapolis market to 21.42 percent in Harford County.

Even though office leasing is down only slightly for Baltimore-based St. John Properties, which owns 45 office projects around the Baltimore Beltway, the commercial developer and landlord is still offering broker incentives, said Gerard J. Wit, a vice president.

At Windsor Office Park in Woodlawn, the company is offering brokers 150 percent of their normal commission rate for leasing space in two one-story buildings totaling 70,000 square feet.

And in May, brokers who showed up at the Baltimore Crossroads @ 95 office project near White Marsh were treated to lunch, door prices and $95 each. The incentives drew nearly 300 people, Wit said.

"You can send all the e-mails, printed information or videos, but there's no substitute for getting them physically on the property," Wit said.

Office property owner General Growth Properties, which also owns area shopping malls, is offering $500 gift card to stores at any General Growth mall to cooperating brokers for tenants who sign a letter of intent for a minimum three-year lease at Rivers Business Park in Columbia, Triangle Business Park, which straddles Baltimore City and Baltimore County and office buildings around The Mall in Columbia.

"I think it's getting the attention of the brokers that these incentives are out there, and making brokers think of those projects," said David Fritz, a principal with KLNB commercial brokerage and part of a leasing team for General Growth. As a result of the incentive, the landlord has gotten some letters of intent, he said.

Developers are also more aggressively seeking tenants "who might have been too small 18 months ago but who are courted now because of the need to stabilize the rent rolls," Samet said.

The market slowdown has yet to put pressure on rents, and if anything, rents are higher at most of the newer buildings because of higher construction and land costs, said Cole Schnorf, president of the Maryland chapter of the National Association of Industrial and Office Properties and a senior vice president of development for Manekin, a commercial development company.

"There have been no significant concessions on the part of owners," he said, adding that he doesn't expect many construction starts this year.

The slowdown does not mean that companies across the board are staying put.

The largest single office building under construction is the 24-story Legg Mason tower in Harbor East, which will be completed next year and is two-thirds leased to Legg Mason and law firm Hogan & Hartson. Integral Systems is moving into a 131,000-square-foot building under construction by Corporate Office Properties Trust in the Columbia Gateway office park in Howard County.

Developer Opus' 60,000-square-foot office building at Aberdeen Proving Ground in Harford County has been leased to information technology company CACI International Inc. Venable LLP relocated into 142,000 square feet at 750 E. Pratt St. downtown, and Merkle, a database marketing agency, moved its headquarters into a 120,000-square-foot building constructed for the company in Columbia Gateway. CareFirst BlueCross BlueShield of Maryland leased an additional 29,000 square feet of offices at Canton Crossing Tower in Canton.

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