A wary 2009 forecast

New business on Howard's horizon, but first half of year could be economically bleak

December 07, 2008|By Larry Carson | Larry Carson,larry.carson@baltsun.com

Major new office tenants are coming to east Columbia. A big Ollie's odd-lot discount store is moving to U.S. 1. And a replacement for a restaurant that closed in Maple Lawn is preparing to open by spring.

Those are the bright spots that Richard W. Story, Howard's top economic development official, shared with the audience at the Chamber of Commerce business forecast breakfast last week.

But an economist brought a different message, telling the crowd that gathered Wednesday at the Sheraton Hotel in Columbia to look for a very bad 2009, especially in the first half.

"It's always darkest ... before it turns pitch black," quipped Anirban Basu, chief executive officer of Sage Policy Group. "The first six months of next year is shaping up to be horrific."

Federal Treasury Secretary Henry M. Paulson Jr. said last week that the nation is officially in a recession and that it began a year ago. That news recalled last year's chamber breakfast, at which BB&T bank's senior vice president, Jeffrey Schappe, predicted 2008 would be recession-free.

Yet Story noted that Howard has the lowest unemployment rate in Maryland and is often the "last in and first out" of a recession because of the large number of federal workers and agencies nearby. The Obama administration likely will help with more stimulus money, and the arrival of new residents aided by federal moving reimbursements as part of the national military base realignment is also a plus, he said.

"There will be no downturn in government spending," Story predicted, noting that the National Security Agency, the Johns Hopkins University Applied Physics Laboratory and other government-associated agencies are still growing.

Story also said two large firms whose names he could not reveal are ready to rent a combined 300,000 square feet of new office space in Columbia's Gateway Business Park, including the new seven-story Trammel Crow office building there. That should drop Howard's overall office vacancy rate to about 10 percent, which he said is an "optimal" level. That means enough empty space to lure new firms, but not so much as to be a drag on business.

He said a new restaurant is preparing to take over the space previously occupied by Trapeze in Maple Lawn, and a 33,000-square-foot Ollie's Bargain Outlet is preparing to open at the former Burlington Coat Factory shopping center on U.S. 1 at Route 175.

But Basu said Story's office-vacancy forecast presumes no current tenants will leave, and that since the recession has turned global and is affecting white-collar workers who live in upscale communities like Howard, the local economy will be affected.

Despite being the beneficiaries of huge government bailout payments, banks are scaling back lending, he said. They are using the money to buy other banks and slice jobs, or to cut their costs, exemplified by moves such as Citigroup's announced layoff of 53,000 workers.

"Why should bankers lend?" Basu said, noting that many banks are waiting to see what President-elect Barack Obama does when he takes office next month.

For Howard County, a more important question is where to go from here, Basu said. If the county delays redevelopment along the U.S. 1 corridor because of residents' demands that the county first provide more schools, libraries and community centers, and if the downtown Columbia redevelopment takes too long, the county could suffer. Fast-growing communities in surrounding counties and even areas of Baltimore will, in 10 to 15 years, leave Howard in their economic dust.

"Columbia will face a lot of competition it does not anticipate," he said.

Other speakers weighed in with their observations. Real estate agent Julia Mattis told the group that home sale prices were down 5.8 percent to an average $429,598 last month, with a 21 percent drop in volume of sales. That is better than what is happening in surrounding counties, she said, but that, too, could prove to be a problem.

"Sellers want high prices. Buyers expect big price drops," she said, explaining that the relative stability of prices in Howard may keep more buyers in a "wait-and-see" posture.

In addition, because Howard is considered part of the Baltimore area statistically, banks won't approve loans large enough to cover the county's higher Washington-influenced prices.

Another speaker, Paul Hartgen, the new president and chief executive officer of the Restaurant Association of Maryland, which has its headquarters in Columbia, said the number of restaurants and workers has risen in the past year, though slowly, despite the recession. And while food costs are higher, restaurant prices have remained stable.

Allen Stott, a partner in Stronghold Advisors, a small business consulting and investment firm, said his advice to business owners is do more marketing, perhaps even think about buying underpriced firms that are struggling, and cut costs.

"Underperforming employees - let 'em go," he said.

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