Commercial real estate developers focus on retrenchment, sale of property


The current year will be a "year of retrenchment" for commercial real estate developers as they concentrate on retaining tenants and controlling expenses rather than constructing new buildings, according to a newly released report by the Legg Mason Realty Group.

Developers also will be tempted to sell properties to increase their liquidity, according to "1991 Office-Industrial Market Review," the report on the Baltimore area.

Trends cited in the report include:

* Continued weak office demand: "Only 800,000 square feet of office space was leased during 1990, half as much as in the prior year," Legg Mason said. "The current supply of available office space in the region could take years to lease up, due to an 18.2 percent vacancy rate, demographic changes in the work force and other factors."

* Continued improvement in industrial demand: "Over 2.4 million square feet of industrial space were leased during 1990," according to thereport.

Although that is 20 percent less than in 1989, "all long-term trends indicate strong continuing demand, especially for large distribution warehouse buildings."

* Decline in some property values: "During 1990, some office and industrial property values declined because of persistent high vacancy rates and a demand for higher returns by the investment community," the report said. "Very few sales took place, however, because of the uncertainty of the buyers that values had yet stabilized," as well as the lack of financing.

* A delay in recovery: Legg Mason Realty Group forecasts that recovery from the current recession forresidential development will begin in the second half of 1991.

"The recession in commercial development, when judged by low returns on investment, began as much as two years ago in some sectors," according to a summary of the report, "and LMRG projects it will continue for at least another year."

Around the region:

Digital Equipment Corp., a large supplier of computer systems, software and services, leased 22,794 square feet of office space at the Gateway II office building near Baltimore-Washington International Airport.

It is the first tenant in the five-story, 118,000-square-foot building, the second phase of the Gateway International office complex developed by BTR Realty. The Staubach Co. represented DEC, and W. C. Pinkard & Co. represented the landlord.

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