CITY HIGHLIGHT, JULY 2008

BALTIMORE CITY HIGHLIGHTS
William S. Roohan, Jim Caronna & Patricia Palumbo

Baltimore Multifamily Market

The economic resurgence of greater Baltimore continues in light of today’s marketplace, albeit at a slower pace than in previous years. With resilient economic sectors such as tourism, healthcare, finance and government (Washington, D.C., is 30 miles to the south), Baltimore sustains positive job growth (12,690 new jobs were created for the 12 months ending April 2008 for the metro area), a low unemployment rate (3.6 percent as compared to 5.0 percent nationally, as of April 2008), strong demographics and solid multifamily fundamentals.

Greater Baltimore, with a sizeable and well-educated workforce of 1.33 million, and world renowned universities and medical centers, attracts a wide array of major employers to the area. Several notable corporations have established their headquarters in greater Baltimore, including Fortune 500 members Constellation Energy and Black & Decker, Under Armor, T. Rowe Price, Legg Mason and “America’s Best Hospital”, The Johns Hopkins Hospital (according to U.S. News and World Reports). In addition to current positive job growth, the implementation of the Pentagon’s Base Realignment and Closure recommendations (BRAC) is hailed as the largest Maryland economic driver since World War II. BRAC is anticipated to add approximately 60,000 military, contractor and civilian jobs to the region focused near Fort Meade and the Aberdeen Proving Ground. To help accommodate this growth, the Baltimore region is slated to receive 5.5 million square feet of new office space, 1.1 million square feet of retail space and 2.7 million square feet of warehouse space within the next decade.

Baltimore’s multifamily pipeline remains in check as demand for rental properties is fueled by a highly educated and transient renter base. A trend has emerged as wealthy individuals abandon home ownership for the convenience, affordability and upscale lifestyle offered by some of the new rental communities in downtown Baltimore. The market fares well with Class A face rents averaging $1,609, concessions of 6.1 percent and stabilized vacancy of 5.2 percent for the city (according to Delta Associates’ First Quarter 2008 Report).

The Baltimore region is experiencing a significant amount of residential demand. Since mid-year 2007, five Class A projects were delivered in downtown Baltimore, adding nearly 650 units to the market. According to Downtown Partnership of Baltimore, Inc. (Downtown Partnership), 7,400 new residential units will need to be added to meet the anticipated housing demand from 2007 to 2012; however, only 4,200 units have been delivered, are under construction or are planned thus far. Due to uncertainty in the global economy, increasing energy prices and overall decreasing consumer confidence, out-of-town developers (including those who had aggressively entered the market over the previous few years) are becoming more cautious.

The majority of development throughout the Baltimore region (and especially in downtown Baltimore) is mixed-use with a focus on creating “live, work, play” environments in pedestrian-friendly areas or within close proximity to public transportation. Several of these recent projects involved the luxury rehabilitation of former office and industrial properties including 39 West Lexington, Centerpoint, The Abell Building, St. James Place, 101 Wells and the Greenehouse. Developers are becoming more selective and are only pursuing sites with a story; the two compelling factors driving site selection is proximity to both transportation nodes (including the Metro and Light Rail System) and employment centers.

Some of Baltimore’s planned projects are:

• Westport Waterfront, by Turner Development, will feature up to 3 million square feet of office, 1,000 residential units and a 500-room hotel. The development will be accessible via the Light Rail and MARC Train. Construction is slated to begin mid-2009.

• Port Covington, by Finmarc (with a JV Partner), will likely host up to 6 million square feet of office, retail and multifamily housing.

• Harbor Point – A partnership between Struever Bros. Eccles & Rouse and H&S Properties will create the final mixed-use component of the Harbor East project, which will contain 1.8 million square feet of office, retail and residential space. The groundbreaking took place in the winter of 2008.

• The Fitzgerald, by Bozzuto Group, is a 280-unit multi-housing complex in Mount Vernon on the University of Baltimore’s campus near the Maryland Institute College of Art. Groundbreaking is scheduled for summer 2008.

• Domain Brewer’s Hill – Construction is underway on Hanover Company’s luxury project in Canton, which will contain approximately 180 units and is anticipated for delivery in spring 2009.

As Baltimore works towards establishing itself as a powerful economic center on the east coast, its market fundamentals, location relative to Washington, DC and growth opportunities will ensure a solid future for continued development.

—William S. Roohan is vice chairman in CB Richard Ellis’ Baltimore office.

Baltimore Industrial Market

A modern-day industrial revolution is occurring within the geographic boundaries of Baltimore City (and County), and depending on where your primary interests reside, this phenomenon is either very good, slightly troubling or bears watching to see how the marketplace reacts. After a decade-long dearth of new industrial product entering the Baltimore City inventory, a number of prominent commercial developers have initiated the construction of state-of-the-art industrial buildings at virtually the same time.

Duke Realty Corporation has led the way by building nearly 500,000 square feet of industrial space in the past year at the former General Motors plant, and local company H&H Rock has chipped in with an additional 82,500 square feet at their Hollander 95 project. This availability is in addition to large blocks of space totaling more than 300,000 square feet in Holabird Industrial Park, the 132,000 square feet at Point Breeze Business Center and another 2.3 million square feet that is on the market at a variety of sites inside the Baltimore Beltway. But wait – there’s more.

Properties positioned just to the northeast of this Baltimore City submarket often are considered by companies considering relocating. East Baltimore County features new industrial product owned by First Industrial Realty Trust, St. John Properties, FRP and Chesapeake Real Estate Group at the 1000-acre Baltimore Crossroads@95 project, near Interstate 95 and Maryland Route 43. These developers have added almost 750,000 square feet of new industrial and flex product to this submarket.

There is approximately 550,000 square feet of new industrial space in Baltimore City, a figure that bloats to nearly 2 million square feet if older product is factored in, and another 350,000 square feet of new speculative space will be added to the city’s industrial plate by year-end. The inclusion of nearby product in Baltimore County adds 1.5 million square feet of new space for an overall total of 3.85 million square feet of availability.

So where is the good news in all of this? For the first time in many years, companies looking for modern industrial space in Baltimore City have multiple options. In addition to all the east side activity, the Westport project of Turner Development and the continued renovation and redevelopment of the Montgomery Park area means Baltimore City can now offer a variety of efficient warehouse alternatives for businesses to incubate, grow and expand into. This is promising for the tax base of the city and alleviates concerns of employers who might potentially lose workers if the company relocates to a suburban location.

Total absorption for Baltimore City at the end of the first quarter stood at more than 100,000 square feet and about half of that came from the Johns Hopkins lease of 50,000 square feet at Chesapeake Commerce Center from Duke Realty. During the past 3 years, the Baltimore City metropolitan market has had positive net absorption of approximately 1,000,000 square feet of industrial space. Currently, vacancy rates are in the relatively healthy 10 percent range.

Although this rash of new construction in the city will create some short term growing pains, the net effect is that the addition of modern industrial product will help set the table for a more stable and prosperous city of the future.

— Jim Caronna is a principal of NAI KLNB in Baltimore.

Baltimore Retail Market

Maryland is the wealthiest state, per capita, in the union, with the fourth largest retail market. Baltimore has recently ranked seventh among the biggest metro areas. Developers are not strangers to this “top spot” status as they continue to build in the city and markets all around Maryland, notwithstanding a slowing U.S. economy. Base Realignment & Closure (BRAC), the consolidation of military installations around the country, will result in roughly 6,000 direct jobs at Fort Meade, in Anne Arundel County; and 8,000 jobs at Aberdeen Proving Ground, in Harford County. Conservative estimates total about 60,000 BRAC-related jobs will be created in Central Maryland over the next decade, adding billions of dollars to the state’s economy.

In Baltimore City, entertainment, dining, living, shopping and convenience coalesce in a host of mixed-use projects. Luxury condominium projects are emerging, incorporating amenities such as full service spas and gourmet restaurants. Young professionals, empty nesters and affluent condo dwellers desire upscale retail and dining options to satisfy their palates for the ultimate, urban lifestyle, either in their dwelling place or within close proximity. Approximately 1,500 luxury condominiums have been built, are under construction or are in some stage of planning; ranging in price from $365,000 to $7 million (HarborView). The exclusive 192-unit Ritz-Carlton Residences is delivering to residents this summer. In Harbor East, the Four Seasons Hotel/Residences and Legg Mason Towers at Harbor East, a 24-story, glass skyscraper is currently under construction by H&S Properties and Struever Bros. Eccles & Rouse. The project will include 256 hotel rooms, upscale condominiums, a world-class spa, chic retail, restaurants and the 400,000-square-foot headquarters of Legg Mason. Whole Foods Market, Arhaus Furniture, South Moon Under, Urban Chic and other fine shops and restaurants have recently opened in Harbor East. Meanwhile, the 752-room Hilton Convention Center Hotel, with a 32,000-square-foot green roof, is accepting August reservations. Developer Mark Sapperstien of McHenry Row, a planned residential-office-retail project in Locust Point, has inked the deal with Harris Teeter to open in 2010. Harris Teeter and Target are also considering stores in Canton Crossing (Hale Properties, LLC and Greenberg-Gibbons). Silo Point is the planned conversion of a former grain elevator into a 24-story, glass-sheathed tower featuring 228 luxury, urban condominiums, retail space and outdoor cafes.

General Growth Properties brings its charm to the Northwest sector of Charm City with a major, multi-million dollar redevelopment of Mondawmin Mall. A 225,000-square-foot expansion and a complete renovation of the existing 360,000 square feet will include the city’s first Target and Shoppers Food opening this summer. A short distance to Northern Parkway & Wabash Avenue, Metropolitan Management Company signed a lease with national retailer Citi Trends to open a 14,000-square-foot store in Northwest Plaza Shopping Center later this summer.

With over 70,000 people, Owings Mills, which is located 15 miles north of the city, is the area’s fastest-growing population center and has the highest concentration of young professionals in Baltimore County. Stevenson University (formerly Villa Julie College) is in the midst of a $20 million campus expansion on Owings Mills Boulevard, across from the new Best Buy, Famous Dave’s, Noodles & Company, Q-Doba and Chick-fil-A in Owings Mills Square, which was developed by David S. Brown Enterprises. Brown’s company, together with the state and county, are developing the 47-acre, transit-oriented Metro Center at Owings Mills, to include 230,000 square feet of retail, 1.2 million square feet of office space, 500 new residential properties, a new library, hotel and community college.

Harris Teeter opened its first Howard County store in Columbia’s King’s Contrivance Shopping Center in May, and a second is expected to open next year in Maple Lawn, a 500-acre, mixed-use community (Greenebaum & Rose Associates). Wegman’s plans to open a 160,000-square-foot store on Snowden River Parkway next year. Filene’s Basement opened a new 46,000-square- foot store at Snowden Square last fall. Gateway Overlook, General Growth Properties’ newest shopping destination opened last year with Office Depot and Best Buy (relocating from Gateway Overlook). Subsequent openings include Lowe’s, Costco, Trader Joe’s and Houlihan’s restaurant. General Growth Properties recently unveiled plans to redevelop Columbia Town Center, with eco-friendly elements, adding 300,000 square feet of retail, 200,000 square feet of office, a hotel and an ice skating rink.

Anne Arundel County is exploding with commercial retail/office development, due in part to the presence of the National Security Agency, Fort George G. Meade and the BWI Thurgood Marshall Airport. The three combined contribute nearly $10 billion to Maryland’s economy. In April, the Defense and Information Systems Agency (DISA) broke ground on their 1 million-square-foot headquarters at Ft. Meade, as part of BRAC. In May, the Village at Odenton Station, a 400,000-square-foot, transit-oriented, mixed-use development, became the first project to break ground in the long awaited Odenton Town Center, with the Dolben Company building 235 luxury apartments opposite the MARC Rail Station, a busy commuter rail service to Washington/Baltimore. The project will contain 60,000 square feet of first-floor, restaurant/retail space, leased by Metropolitan Management Company. The Halle Companies has site development approval to begin construction of a high-tech government office campus totaling 3.5 million square feet, with a residential/retail component at Maryland Route 32 and Maryland Route 175, which the state will upgrade to six lanes. The development team of Bozzuto-Osprey-Reliable, with the state and county, will develop Odenton Town Square, a transit-oriented development on 24 acres at the MARC station featuring structured parking, a hotel, condos, apartments and retail.

Other significant developments include the 2.2 million-square-foot Annapolis Towne Center, developed by Greenberg Gibbons and Petrie Ross Ventures, which is expected to open this fall. Target, Whole Foods, P.F. Chang’s, Chop House, the Real Seafood Co., Brio Tuscan Grille, Anthropologie, Coldwater Creek and Brooks Brothers are prominent tenants, together with 150,000 square feet of office space, a 100,000-square-foot hotel and nearly 1 million square feet of luxury condominiums. Park Place, a mixed-use project combining hotel, residential, retail, office and entertainment is open on West Street. The developer, Jerome J. Parks Companies, is planning a theater component to add to the tenant lineup, featuring Saucy Shoes, The Papery, Aveda Spa, Visions Art Gallery, Fado Irish Pub, Carpaccio Tuscan Kitchen & Wine Bar, Morton’s Steakhouse and Starbucks to name a few. Arundel Preserves, a $1 billion mixed-use development covering 270 acres, and part of the 1,100 acre Arundel Mills Development, features three hotels, 2 million square feet of office space and 250,000 square feet of retail and restaurants; and more than 1,200 residential units. The development team comprises Bozzuto, Toll Brothers, Corporate Office Property Trust and Somerset Construction. New stores opening this year in Arundel Mills are Esprit Outlet, Ann Taylor Factory Store, Oakley Vault, The Disney Store Outlet, Body Basics, Levis/Dockers Outlet, Robert Wayne Footwear and Zumiez.

A recent change in restaurant liquor licensing laws opened the door for more chain restaurants, including three of the Darden Restaurant concepts Red Lobster, The Olive Garden and LongHorn Steakhouse, to plan locations at Arundel Mills. Just east of Arundel Mills, in Glen Burnie, Steve & Barry’s opened a 76,000-square-foot family-apparel-superstore in the Cromwell Field Shopping Center (Metropolitan Management Company), featuring exclusive celebrity apparel and shoe lines from Sarah Jessica Parker, Venus Williams, Stephon Marbury, Amanda Bynes, and a newly released Surf and Skate line by Laird Hamilton.

Baltimore region commercial developers and landlords are benefitting from a strong federal government presence and a growing high-tech, high-salary workforce. Notwithstanding, they are stepping cautiously through a national economic mine field; carefully choosing projects and tenants; and vice versa. Leasing small shop space has become the challenge, partly due to a lack of lenders loaning to lessees. Retailers are tightening their belts as operating costs increase, gas prices soar to $4.00 per gallon, utility charges rise and consumers have less disposable income than they had last year. Some landlords are offering rent concessions and/or tenant improvement dollars, particularly in markets outside of the growth areas. Average rent across the region is $20.27 per square foot, net; with a current overall vacancy rate of 5 percent.

— Patricia Palumbo is director of leasing and marketing with Owings Mills, Maryland-based Metropolitan Management Company.

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