Office Market

It's spring, and that means it's time to watch the grass grow.Yes, we're talking about commercial real estate.The first quarter of 1994 was a slow time to watch the office market recover -- but it was still recovering, according to Casey & Associates, a Baltimore-based brokerage and management firm.The big deals weren't plentiful, and the key measures of the market's health were more or less where they were at the end of 1993, but the past few years have provided enough drama to tide the players over for a while.

The threat of automatic spending cuts by the federal government caused companies to press the pause button on real estate expansion in the Baltimore region during the third quarter, according to analysts. "It reflects the nature of the economic drivers in the region," said Robert Manekin, managing director of Colliers International's Baltimore office. Federal agencies and contractors make up a large percentage of office tenants throughout Central Maryland, and uncertainty about the national budget has caused them to be more cautious about leasing new space, he said.

Just two years ago, developers were scrambling to line up banks and other big companies as anchor tenants for beautiful new office buildings. Little did they know that the zenith of the early 1990s market would be established by government bureaucracies such as Medicare.Hurt by the recession, companies aren't spending money on new offices as they did five, or even three, years ago.That has left the federal government as the biggest player in Baltimore's office market this year. And with construction of speculative private office space virtually halted, the government could be the biggest force in building for several years.

Thanks to demand from the defense sector, the vacancy rate for office space in Baltimore's suburbs is lower than anywhere else in the United States except for two suburban markets in California, a new commercial real estate report shows. Suburban Baltimore had an office vacancy rate of 14 percent, according to an overview of the mid-Atlantic commercial market released this month by Cushman & Wakefield, a commercial real estate firm that operates nationwide. That's lower than any other suburban market the firm tracks except for two high-tech hotbeds: the San Francisco peninsula, which has an 11.6 percent vacancy rate, and Silicon Valley, with a 12.7 percent rate.

NEW YORK -- In a potential real-estate deal sending shivers through New York's already depressed office market, Citicorp, the city's largest lender to developers, said yesterday that it was negotiating the sale of a vacant 42-story office tower that it holds in foreclosure to Bertelsmann AG. The sale would most likely be at a loss.Bertelsmann, the diversified German concern whose U.S. holdings include RCA Records and Bantam Doubleday Dell, the publishing concern, confirmed the negotiations were going on.If a deal is struck, the price would almost certainly be far below the $250 million mortgage that Citicorp holds on the building.

The value of commercial real estate property is expected to remain depressed, perhaps for several years, in part due to a surge in the number of lender-controlled properties in the Baltimore area, a recent study suggests.Approximately 49 office buildings -- close to 10 percent of the Baltimore area office market -- is currently controlled by lenders, according to the W.C. Pinkard report. Those properties represent approximately 3.3 million square feet of space.The properties have been taken over by banks and other institutions through foreclosure or receivership.

A jump in office vacancies in Baltimore offset improvements in the suburbs this year, according to reports by two leading commercial real estate firms.Overall, the area's office market remained flat."While we're seeing growth in selective sectors, we're still feeling the effects of consolidations, which pushes occupied space back onto the market," said Jeffrey B. Samet, a vice president of Colliers Pinkard.Additionally, few office building sales were recorded in 1995, the notable exception being the RREEF Funds' purchase of the two-building Dulaney Center complex in Towson for $30 million, because many investors appear unwilling to invest in a market with pockets of instability.

A midyear international office market survey conducted by The Office Network shows that the greater Washington area office market continues to grow but at a much slower pace than it has in the recent past.Ranked sixth in the nation in net absorption, the region recorded an increase in occupied office space of 1.5 million square feet for the first half of this year.In the survey, which presents midyear figures from 49 markets -- 36 in the United States, two in Canada and 11 in Western Europe -- the national average for uncommitted space in existing office buildings dropped slightly to 19.3 percent, down from 19.5 percent at the end of last year.

Now, from the commercial brokerage firm of W.C. Pinkard Inc. comes confirmation that a lot of commercial real estate buildings out there that are short on tenants.That may not be new news for those who have observed the increasing number of "see-through" buildings in the area or have had to cope with recession-driven high vacancy rates. But the situation is worse than even Pinkard imagined it would be.In a report reviewing the local office market, Pinkard executives conclude that the first half of 1991 saw "a collapse" in the rate of office absorption.

The threat of automatic spending cuts by the federal government caused companies to press the pause button on real estate expansion in the Baltimore region during the third quarter, according to analysts. "It reflects the nature of the economic drivers in the region," said Robert Manekin, managing director of Colliers International's Baltimore office. Federal agencies and contractors make up a large percentage of office tenants throughout Central Maryland, and uncertainty about the national budget has caused them to be more cautious about leasing new space, he said.

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.

The streak has ended. For the first time in three years, the construction of office buildings in metropolitan Baltimore far outpaced the amount of space tenants signed up to lease. Just 43 percent of 1.8 million square feet of new office space completed in the Baltimore region last year was leased, according to a study by Colliers Pinkard, a commercial brokerage. The study shows an end to an unprecedented run in which the office market had been both building and absorbing more than 2 million square feet of space per year.

The City Crescent, a pioneering project on Baltimore's west side and the first downtown office complex developed by a minority-led team, has sold for $75 million, the broker for the sale said yesterday. Washington Investment Capital purchased the 270,369-square-foot building at 10 S. Howard St., commercial real estate firm Trans- western said. A group led by minority developers Otis Warren and Theo Rodgers built the sprawling 11-story building in 1993 on a city-acquired parcel for the federal government, which leased the majority of the space for anchor tenant the U.S. Army Corps of Engineers and other federal agencies.

The Sun Trust Bank Building, a 25-story office tower in downtown Baltimore, has sold for $62.75 million, signaling continued strength in the city's commercial real estate market, CB Richard Ellis Group said yesterday. The sale of 120 E. Baltimore St. to a Massachusetts-based investor brings the combined value of office properties sold downtown to more than $300 million this year, far surpassing the $185 million worth of office properties sold downtown all of last year, said Bo Cashman, a senior vice president in CBRE's Investment Properties Capital Markets Group.

Amid signs that Baltimore's suburban office market is on the rebound and healthier than other U.S. markets struggling to recover from a downturn, construction of office buildings is expected to heat up this year, with nearly three dozen projects likely to sprout by late summer. Construction will start on many of those buildings before any tenants have signed up, another sign of developers' renewed confidence in the suburban market. After a slowdown brought on by the technology and telecommunications busts, company mergers and the aftershocks of the Sept.

The last time the office market was this lousy, Manekin LLC made a fleeting foray into residential development. This time, the Columbia company best known for building, brokering and managing offices says it has branched out for keeps. Projects in early stages in Harford County, Cecil County, Delaware and Pennsylvania will produce in excess of 3,500 lots over the long haul - more than a decade - for the company to sell to builders. "Rather than starting small, we're starting large," said Richard Alter, president and chief executive officer of the 150-employee company.

Downtown's largest owner of older office buildings, unable to stave off a crumbling market, has relinquished ownership of 14 buildings to an affiliate of investment firm Goldman, Sachs & Co.Kenilworth Equities Ltd.'s decision to turn over control of the buildings to the New York brokerage house marks the latest evidence of the continued deterioration of the so-called Class B office market downtown, which for years has been struggling against an abundance of...

The Arbitron Co., the radio-ratings company, plans to move its headquarters to Columbia next year -- a boost to the Howard County economy and to the beleaguered Baltimore-Washington office market.The company will move 400 employees from four other sites in Laurel and Beltsville to 127,000 square feet of office space in the Patuxent Woods Business Park. The lease would be one of the largest private-sector deals in the Baltimore area in years.The 15-year-lease is worth more than $20 million, according to Cole Schnorf, a Manekin Corp.

It doesn't matter how weak the office market is if you've got the right office. A new Class A building in Sparks sold for $181 a square foot this week, which brokers believe is a record price for a sizable property in Baltimore County - and unusually high for any suburban mid-rise. A key inducement: It's fully leased by one company for the next 10 years. Highland Partners LLC, which developed the 210,000- square-foot building on a 25-acre parcel, sold it for $38 million to the California commercial real estate investment firm BentleyForbes.

Ed St. John has seen more than a few peaks and valleys over the course of three decades in the commercial real estate business.And in the mind of the MIE Properties Inc. president, 1999 will mirror the year before: While healthy, it will be neither zenith nor nadir.He isn't alone in that prediction. Throughout the Baltimore-area commercial real estate market, industry experts say the coming 12 months will be prosperous for all types of real estate."I think you'll see continued momentum at work in both the office and industrial sectors," said Robert A. Manekin, president of Casey & Associates Inc., a Baltimore-based real estate services firm.