Suburban Baltimore Office Market
by Randall Griffin and John Blumer

The suburban Baltimore region features numerous built-in economic advantages that, combined with an outstanding location, will ensure the continued health and prosperity of the commercial real estate sector in the year ahead, according to Randall Griffin, president and chief operating officer of Corporate Office Properties Trust. “An unrivaled diversity of corporations and organizations — from the phototonics industry to the federal government — has propelled the region to a leadership role in construction and absorption ratios over the past two years,” he says. Outstanding opportunities exist for savvy real estate developers who can seize these lower interest rates by aggressively financing new or existing projects, Griffin adds. The purchase prices for available buildings have also changed in relation to this rate fluctuation, offering additional options for opportunistic developers.

The suburban Baltimore office market strongly reinforced its ties to the high technology sector and experienced the best of both worlds in 2000, according to John Blumer, executive vice president and chief operating officer of KLNB, Inc. “The year, which began with unrealized consumer and business hysteria over the Y2K bug, ended with record occupancy and the arrival of major high technology service providers with visions of additional expansion plans,” says Blumer. “2001 got off to another strong start, fueled by low interest rates, record unemployment in the region and new construction starts.”

New office developments in the suburban Baltimore area include a 105,000-square-foot office building at 1304 Concourse Dr. and a 120,000-square-foot office building at 2701 Phoenix Rd., both by Corporate Office Properties Trust, and an 85,000-square-foot Class A office building located at 801 International Dr. by Heffner & Weber. MIE Properties, Inc. has commenced construction on numerous flex/office buildings, including 600,000 square feet of space at BWI Technology Park and new buildings at International Trade Center. Telegraph Road, LLC is building 125,000 square feet of space at Telegraph Road Business Park, and FRP Development has begun construction on 380,000 square feet of flex/warehouse at Hillside Business Park. “The availability of high-image, speculative office space in a first class office park environment has been a powerful attraction for businesses and high-technology companies,” says Blumer. “The flex product, much of which is centered around the BWI Airport market, has caught the fancy of all business sectors, as well as ones involved in research and development and distribution,” he adds.
Other developments in suburban Baltimore include a four-building office and mixed-use retail project at Columbia Corporate Park by Merritt Properties. The first five-story, 107,000-square-foot Class A office building is under construction. Liberty Place at Columbia Crossing consists of six high-image, one- and two-story office buildings totaling 260,000 square feet. This project is now under construction at the intersection of MD Route 175 and Dobbin Road in Columbia. One Gateway Exchange is a new five-story, 125,000-square-foot Class A office building in Howard County developed by Corporate Office Properties Trust. “This site also can support two additional buildings representing a total of 375,000 square feet of new space,” says Griffin.

The Hunt Valley/Sparks area is seeing excellent activity, centered around Loveton Business Center and pointing north, according to Blumer. “This location gives businesses access to downtown Baltimore as well as to the southern Pennsylvania marketplace,” he says. Owings Mills in northwest Baltimore County is showing some signs of emerging from an extended down period, with vacancy rates dipping below 20 percent. A bidding war ensued over a building formerly owned by the United States Post Office with more than seven companies vying for it. It eventually sold for more than 30 percent of its original asking price. “The area surrounding BWI Airport continues to experience the greatest amount of activity, thanks to its proximity to four markets and excellent highway system,” says Blumer.

“The Anne Arundel/Howard County area is seeing the bulk of the action from a new construction and leasing perspective,” says Griffin. These counties are strategically positioned between four major markets, Baltimore, Columbia, Annapolis and Washington, D.C., and recent highway improvements (specifically MD Route 100) have further shortened driving distances. Griffin also notes that the Baltimore-Washington International Airport is undergoing a major expansion and has soared to the fastest growing airport in the world. “Employment prospects are extremely bright in this region as well, with a high concentration of scientists and engineers,” he says. “This has further encouraged high-technology companies to re-locate here.”

Major tenants in the area include Verizon Wireless (158,000 square feet), Amerix (154,000 square feet) and Johns Hopkins University (230,000 square feet to be built) However, “the Federal Government remains the 500 pound gorilla in the Baltimore-Washington area with an endless appetite for new space,” says Griffin. This is followed by defense contractors and companies involved in the photonics and high technology sector. General Dynamics and Computer Sciences Corporation signed major leases last year, he adds.

Recent leases include 100,000 square feet by Circle International at Park 100 Industrial Park, 97,000 square feet by Arbros Communications at 880 Elkridge Landing Road, 150,000 square feet by Bookham Technology at 9140 Route 108 in Columbia, 75,000 square feet by ADC Telecommunications at 7055 Troy Hill Drive in Elkridge, and 250,000 square feet by Micros Systems, Inc. at Columbia Gateway Business Park in Columbia. Class A rental rates are $24 in Annapolis, $19.50 at the Airport, $25 in Columbia, $21.50 in Hunt Valley and $21 in Owings Mills.

Vacancy rates are at less than 4 percent at the BWI Airport, 14 percent in Howard County and 1 percent in Columbia. “We expect the current 5 percent vacancy rate to bump up slightly to the 7 to 8 percent range, dampened only by some newer projects that will remain unfilled,” says Griffin. “The fundamentals are in place for continued strong absorption activity in Howard County in the coming year.” Griffin says that the expected entrance and steady expansion of several high-technology companies will punctuate another robust year in the local commercial real estate industry.

The Howard County region continues to offer companies a business-friendly environment ideal for entry and expansion into the market, according to Blumer. Howard County’s focus on technology has drawn multi-national companies such as Trellis Photonics, Ltd and Bookham Technology to establish their North American headquarters in the county. The county’s technology Neotech Incubator has added a 10,000-square-foot expansion to the facility, and there are currently five companies in the incubation with more than 30 employees.

“The Howard and Anne Arundel County market should remain hot and lead the pack as it has done for the past several years,” says Griffin. “BWI Airport is the primary engine that is driving this train, and a wide spectrum of development is occurring around this transportation hub.” Flex/office project is being built to satisfy the need for distribution companies that need space to service Internet-related orders and be within close range of the Airport. Retail product is healthy and is being constructed to service new residents moving into the area. Mid-rise office product is in demand, with a multitude of new users searching for space in the thriving high-technology and defense contractor sectors.

The BWI Airport has become the fastest growing airport in the world, with new passenger service records eclipsed each month. To keep pace with this robust expansion rate, the State of Maryland announced the investment of $1.8 billion for additional airport infrastructure. The Mills Corporation opened Arundel Mills which, at 1.3 million square feet of retail space, represents the largest mega-mall in the State of Maryland.

An accelerated slowdown in the real estate market — as experienced at the end of 2000 — could pose problems for several real estate groups, especially to those with marginal speculative projects, according to Griffin. “The challenge for 2001 will be to absorb these buildings currently under construction and to pause to examine the business climate before initiating any new building,” he says. “Supply is the enemy and caution is required this year so as to not move toward the business cycle extremes experienced in the late 1980s and 1990s.”


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