SOUTHEAST SNAPSHOT, JANUARY 2006

Baltimore/Washington D.C. Industrial Market

Currently, there are two major drivers of the development and growth in the Baltimore/Washington, D.C., corridor. The first driver is the base realignment and the job growth taking place at Fort Meade and the National Security Agency (NSA). This growth has resulted in significant back office development, which is taking place in new construction as well as warehouse properties converting to office properties. This growth has also resulted in several U.S. General Service Administration (GSA) warehouse requirements including projects involving the Air Force and the Social Security Administration (SSA). The second driver is the continued growth of the Baltimore/Washington International (BWI) Airport. BWI's continued growth as a major hub for passenger as well as freight traffic has resulted in growth in the warehouse market. New construction is being absorbed by many of the nation's largest third-party logistics providers (3PL's), freight forwarders, major corporations and the GSA.

However, rising land costs are making warehouse development difficult in the Baltimore/Washington, D.C., corridor. The majority of the industrial development that is taking place is doing so along Route 100 between Interstate 95 and the Baltimore Washington Parkway (295). This is the last remaining area that had large pieces of developable land and development is taking place due to its proximity to the airport. At this point, those land parcels have been acquired. Currently, developers are working on assembling large enough tracts of land to justify significant developments.

Local developer and investor Preston Partners is building 1.1 million square feet of Class A warehouse space near BWI Airport. Of this, two buildings are complete, totaling 585,403 square feet. One of those buildings, totaling 313,850 square feet, has already been absorbed.

Liberty Property Trust is rapidly expanding its industrial portfolio in the marketplace. In 2004, the company acquired approximately 400,000 square feet from Opus East and recently purchased a tract of land with the right to build two industrial properties, adding an additional 260,000 square feet of Class A product, located at Route 100 and Coca Cola Drive.

Lincoln Property Company has proposed 720,000 square feet of Class A warehouse development in three buildings. Seefried Properties has also been active in the marketplace. The quality of construction combined with the location of these facilities will bring the highest rates in the market.

The warehouse owners continue to attract retail support companies and are beginning to attract defense-related distribution users as well as the major 3PL's and GSA requirements. Flex and redevelopment properties are trying to attract high-tech and government contractors that need large open floor plans and heavy parking as well.

Verizon Wireless, a high-tech tenant in the market, recently absorbed 141,000 square feet at 7401 Coca Cola Drive. In addition, Computer Science Corporation, a government sub-contractor, has been growing rapidly and has leased 162,589 square feet at 7231 Parkway Drive, and the SSA has leased 126,000 square feet at Preston Gateway. Eagle Global Logistics has signed a lease for 109,000 square feet at 350 Winmeyer Avenue in Odenton, Maryland, and Elite Spice has signed a lease for 175,000 square feet at Preston Gateway as well.

Warehouse rental rates in the Baltimore/Washington, D.C., corridor range from $4.25 NNN for Class B warehouse properties to $6.95 NNN for Class A warehouse properties with additional office finishes; and vacancy rates as of third quarter 2005 were at 8.99 percent.

With the growth of the NSA and Fort Meade, the market should keep an eye on the Bowie Corridor along Routes 50 and 301. Also, with land cost more competitive in the Baltimore/Washington, D.C., corridor, the market should keep an eye on big box growth west of Baltimore in Hagerstown, Maryland, as many developers will soon head in that direction.

— John Wilhide is senior vice president with the Baltimore office of CB Richard Ellis


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