CITY HIGHLIGHT, JULY 2006

BALTIMORE CITY HIGHLIGHTS
Keith T. Barnett, Mark McConnell, Christopher C. Bennett, Noah Nordheimer

Baltimore Retail Market

Baltimore’s period of retail renaissance has continued to exceed expectations with more in store for this marketplace. The downtown skyline is growing rapidly and the demand for suburban retail projects far exceeds present development.

Spurred initially in large part by The Cordish Company’s redevelopment of Baltimore’s historic Power Plant site (which features ESPN Zone, Barnes & Noble, Hard Rock Café) and their equally successful Power Plant Live project, Baltimore’s Inner Harbor is expanding in all directions with high-end residential, office and retail growth. The area has drawn world-renowned hotel and residential operators such as The Ritz Carlton Residences on the south side of the harbor and The Four Seasons Hotel and Residences in Harbor East.

Retailers have responded to residential demand as evidenced by the recent openings of The Office Depot on the east side of the harbor (as well as the CBD) and Best Buy’s first downtown location in Baltimore at Lockwood Place. This project’s developer, David S. Brown Enterprises, has had the fortunate luxury of picking and choosing tenants, primarily national restaurant users, for the first two levels. Lockwood Place is expected to set record retail rents for Baltimore’s CBD and The Capital Grille, which is immediately adjacent, has received critical acclaim.

Elsewhere in Baltimore, Struever Brothers, Eccles and Rouse can only wish that they could accommodate more retailers in various projects such as, but not limited to, Harbor East (a joint venture with H&S Properties), Brewer’s Hill, The American Can Company, Belvedere Plaza, and Village Commons (a joint venture development adjacent to Johns Hopkins University with Earvin "Magic" Johnson who has invested in other Baltimore projects with Struever). Likewise, Hale Properties has experienced nothing short of miraculous office absorption rates in the first phase of its Canton Crossing project and the retail component of the development is expected to follow suit with a rumored high-end grocery anchor.

In Baltimore’s suburbs, lifestyle and mixed-use projects have drawn national attention, as exemplified by Greenberg Gibbons’ record-setting opening of Hunt Valley Towne Center (Wegmans, Regal Cinema, Sears, Wal-Mart, Dick’s Sporting Goods, DSW and a variety of lifestyle retailers). Hunt Valley draws daily from more than a 30-mile radius and well into neighboring Pennsylvania.

Not to be outdone, Greenberg Gibbons took control of arguably the most sought after redevelopment parcel in the marketplace, located in Annapolis. Annapolis Towne Centre at Parole, a mixed-use project consisting of 1.7 million square feet, is underway and will eventually accommodate 200 hotel rooms, 685 residential units, 120,000 square feet of office and 608,000 square feet of retail. As a testament to the marketplace, Target will occupy 140,000 square feet of third-level space and Whole Foods will operate one of their largest units in the chain consisting of 75,000 square feet.

More recently announced, Greenberg Gibbons has also executed their second lease with Wegmans immediately to the south of their highly succesful Waugh Chapel Village located in Crofton. This project is in the very preliminary stages of development but Target is a rumored co-tenant of Wegmans and demand for the residual retail space in this project will surely outpace supply.

Of note on the outskirts of the Baltimore MSA  is the highly anticipated redevelopment of Frederick Towne Mall, located on Frederick’s “Golden Mile” (Route 40). This project, controlled by JSS Advisors, is presently anchored by Bon-Ton, Boscov’s and The Home Depot. The center is projected to accomodate approximately 225,000 square feet of new anchor/junior anchor space in addition to multiple pad users and approximately 7.5 acres of new residential development.

Similar to national trends, local malls such as Frederick Towne Mall, have been forced to initiate substantial redevelopment/expansion plans in order to compete with surrounding lifestyle centers. Regional Baltimore malls in Annapolis (Westfield), Columbia, Owings Mills, Towson, Mondawmin (all four are owned by General Growth Properties) are accomodating several new and existing retailers with outward facing storefronts and significant improvements. The most substantial of which is the reported interest of Target and Shopper’s Food Warehouse in the major expansion of Baltimore City’s only traditional enclosed mall, Mondawmin.

Next on tap for the market in terms of major lifestyle projects is David S. Brown Enterprise’s mixed-use development of the existing metro parking lots in Owings Mills adjacent to the mall and bordering both sides of Interstate 795. This project is slated to accommodate 1.2 million square feet of office, a state-of–the-art 40,000-square-foot library, 60,000 square feet of college classrooms, 250 hotel rooms, more than 10,000 parking spaces, 495 residential units and almost 300,000 square feet of retail. Echoing the market in general, interest levels are off the charts for all aspects of the project and leasing efforts are well underway.

— Keith T. Barnett is a principal with KLNB Retail, a full-service real estate brokerage firm in Baltimore.

Baltimore Industrial Market

When examining or working within any major, regional industrial real estate market on a daily basis, it is easy to miss the bigger picture. And in Baltimore, this bigger picture is framed by three dominant factors that place the region in an enviable position for the continuation of sustained economic growth, through the inevitable ups and downs of any real estate cycle.

For starters, in Baltimore controls the air, sea and land. Year by year, Baltimore-Washington International Airport (BWI) has managed to increase both cargo and capacity. The Port of Baltimore has made great strides to increase business beyond basic commodities and roll-on/roll-off cargo. Duke Realty’s plans to redevelop the former General Motors automotive plant positions the Port to expand into more “value added” cargo. The modern highway network in and around the Baltimore metropolitan region serves all points and, as transportation costs continue to rise, Baltimore stands to benefit from direct links to the Port, BWI and the road infrastructure.

Secondly, demand drivers remain strong from the organic growth of a diverse economic base of new industry. Maryland fared extremely well in the recent Base Realignment and Closure legislation. Although final numbers fluctuate depending on the source, the combined effect of the combined 8,000 new jobs flowing into both Aberdeen Proving Grounds, to the north of the city, and Ft. Meade, to the south during the next 5 years, will have an overwhelming positive impact on the area’s economy. In addition, the increase of federal spending through the General Services Administration and various defense related agencies adds tremendous stability to the region.

Next is the overall market stability throughout the region. With more than 150 million square feet of rentable space, a market vacancy of 10.6 percent (as reported by CB Richard Ellis) reflects a stable market. Rent growth has been positive with average net asking rents for flex product at $9.80 per square foot and $5.26 per square foot for industrial space. Net absorption varies, however the trend remains positive. The majority of the new construction in the region has taken place in the 60.84 msf located in the Baltimore-Washington Corridor, where activity remains white hot.

The submarkets to watch for spiked growth are Harford/Cecil County and Baltimore County East. The Harford/Cecil submarket consists of only 18.53 million square feet and carries a 17.6 percent vacancy. However, once focus on the vacancy and realize that 11 percent of that vacancy is contained in three buildings ranging from 575,000 to 800,000 square feet, a submarket with above-average occupancy is revealed.

The Baltimore County East submarket is also on the radar screen for several reasons. The soon-to-be completed Maryland Route 43 extension in White Marsh has opened up 500 acres of developable land. First Industrial is constructing two warehouse facilities totaling 430,000 square feet, of which 130,000 square feet has been pre-leased and St. John Properties has developed four flex/office buildings containing nearly 150,000 square feet. There is also demand for redevelopment opportunities in this submarket.

The city of Baltimore recently unveiled a new marketing slogan: “Get in on it.” Companies outside the area would do well to take a more detailed look at this municipality near the Chesapeake Bay, to see its outstanding infrastructure, strong internal and external demand and steady self-regulated growth. Now seems the ideal time to “get in” as the Baltimore region remains in excellent position to accommodate growth and weather any economic downturns.

— Mark McConnell is regional director with the Baltimore office of First Industrial Realty Trust.

Baltimore Office Market

The Baltimore metropolitan office markets are divided into the northern and southern regions. The northern region extends from White Marsh in the Baltimore County East submarket to Owings Mills located in the Baltimore County West submarket and north to Harford County. The southern region covers Annapolis to the east, Columbia to the west, Baltimore-Washington International Airport (BWI) to the north and the Route 2 Corridor to the south. In the southern Baltimore metropolitan area, consisting of Howard and Anne Arundel counties, a great deal of new development is taking place, primarily due to the Base Realignment and Closure (BRAC) process.

Development in and around Fort Meade and Columbia is driven primarily by the National Security Agency’s (NSA) presence in the market and BRAC. BRAC promises approximately 5,300 new jobs on the Fort Meade military base, plus an estimated 7,500 new jobs at NSA through 2009. The “contractor tail” of the military realignment alone is unfathomable, but estimated to be in excess of 15,000 jobs. This influx of people, during the next 5 years, will result not only in a greater need for office and research and development (R&D) buildings, but also in an investment in the infrastructure of Howard and Anne Arundel counties.

Significant developments near the NSA in Fort Meade include Corporate Office Properties Trust’s National Business Park, Capital CREAG’s Odenton Town Center, Heffner and Weber’s BWI Corporate Center and Arundel HGR LLC’s Arundel Mills Corporate Center.

Significant developments in Columbia include projects within Columbia Gateway, which is adjacent to Interstate 95, being developed by Abrams Development, Corporate Office Properties Trust and Manekin LLC. The majority of Columbia Gateway’s new projects consist of multi-story Class A office buildings. Other developments within the Columbia market include Maple Lawn, a mixed-use community that will contain more than 1.8 million square feet of office and retail space, a hotel and 1,300 homes — all being developed by Greenebaum & Rose. Lastly, Liberty Property Trust’s Liberty Place and Merritt Properties LLC’s Columbia Corporate Park have also added much-needed Class A office product to the market.

The Columbia market has become more appealing to many firms looking for space near Fort Meade as it offers not only the product they need, but also immediate access to I-95 and amenities that are not necessarily available closer to the military base.

As the Columbia and Fort Meade submarkets grow and competition for space increases, some developers are looking towards Annapolis as an attractive alternative to Howard County. Annapolis, like Fort Meade, is located in Anne Arundel County and is a mere 13 miles from Fort Meade.

A significant development underway in Annapolis is Park Place, being developed by Jerome J. Parks Companies. This development is significant because it is a mixed-use project that incorporates residential, retail, hotel and office in a major redevelopment located in the West Street corridor – a major Annapolis artery. There are additional developments in various stages of planning, including Annapolis Towne Centre at Parole; a mixed-use project by Greenberg Gibbons Commercial; the Windermere Group’s proposed project for Defense Highway in Annapolis; and the redevelopment of the David Taylor Research Center undertaken by a partnership which includes Mesirow Stein Real Estate of Chicago and, locally, Maurice Tose of Telecommunications Systems.

As of first quarter 2006, the Columbia (Howard County) submarket had a vacancy rate of 11.07 percent with asking rents of $22.46 per square foot. The BWI submarket (Fort Meade) had a vacancy rate of 9.52 percent with asking rents of $23.35 per square foot and the Annapolis submarket had a vacancy rate of 5.35 percent with asking rents of $25.74 per square foot. It should be noted that asking rents on the newer product delivered since January 1, 2005, in Annapolis, are in excess of $26.50 per square foot and in many cases, reach as high as $30 to $32 per square foot.

The Baltimore metropolitan suburban office markets in the southern region of Maryland are looking extremely promising. Again, due to the NSA in Fort Meade and the growth related to BRAC, these counties are expected to see extreme real estate transformations, including commercial, retail, and residential over the next few years.

— Christopher C. Bennett is vice president of MacKenzie Commercial Real Estate Services, an independently owned and operated member of the Cushman & Wakefield Alliance.

Baltimore Multifamily Market

The Baltimore metropolitan area has had an unprecedented level of ongoing multifamily development activity as the city’s for-sale and rental markets continue their historic surge.  A stable economy and a rediscovery of Baltimore’s charming urban neighborhoods have fueled strong demand for apartments and condominiums. Developers have responded with an array of exciting projects that are transforming the character of the city.

Baltimore’s rental market entered the spring leasing season after a solid 2005 performance, as apartment rents across the metropolitan area increased by 6 percent, while vacancy rates held below 3 percent citywide.  During the same period, nearly 2,000 units in eight new rental projects across the city were actively leasing.  Of the new entrants, two prominent projects in downtown Baltimore have been top performers, both in terms of profile and absorption pace. Bozzuto Group’s 315-unit Spinnaker Bay development in Harbor East and Harold A. Dawson’s 390-unit Centerpoint project in the West Side neighborhood have achieved lease-up paces exceeding 10 units per month. The successes are attributable to outstanding design, upscale amenities and superb downtown locations.

As the construction of several high-profile rental projects alters Baltimore’s skyline, the city’s for-sale market has also been on an upswing.  Metro area condo prices soared 26 percent in 2004 and 27 percent in 2005, while more than 7,000 new condo units are currently planned or under construction.  One of the highest profile developments — the 178-unit Ritz-Carlton Residences Inner Harbor — is under construction on the city’s waterfront just below Federal Hill.  With units priced from $800,000 to $5 million, the Ritz Residences will be the first hotel-served condominium in Baltimore, and will feature an onsite spa and restaurant, concierge services, lush gardens and private boat slips. Baltimore’s second hotel-served luxury condominium, Four Seasons Baltimore, is slated to begin construction this summer.  Situated across the Inner Harbor from Ritz Residences, Four Seasons will feature 106 condo residences developed in conjunction with a five-star 200-room hotel.   

While ultra-luxury condominium developments are transforming Baltimore’s waterfront, numerous projects at lower price points are transforming the city’s historic inland neighborhoods.  At the site of the recently demolished Flag House Courts public housing project in Little Italy, Mid-City Urban is developing 337 condominiums and townhouses, including 130 subsidized units, with the help of Hope VI and state grants.  When complete, Albemarle Square will help to reinvigorate one of Baltimore’s most vibrant historic neighborhoods.  On the city’s north side near Johns Hopkins University’s Homewood campus, several developments by Struever Brothers, including Village Commons and 1209 North Charles, will add 300 new condominiums and 600 new dorm beds to the already lively Charles Village area. 

Stable employment growth in Baltimore’s suburbs has fueled solid multifamily market performances in Anne Arundel, Baltimore, and Howard counties, where trailing 12-month rent growth has tracked above 7 percent and condo prices rose 25 percent.  The Pikesville and Annapolis submarkets have been particularly hot, with several Class A rental projects recently acquired for condo conversion, including Stellar Advisors’ recent acquisition of Regatta Bay in Annapolis. This 245-unit property is being converted to condominiums and sales are progressing at a fast pace.

Going forward, Baltimore’s market fundamentals should continue to be strong, as the region’s economic outlook remains positive and the city’s urban submarkets continue to build critical mass.

— Noah Nordheimer is with the Baltimore office of Transwestern Commercial Services.

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