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Institutions take on warehouse market


The numbers say that the market for warehouse space in the corridor between Baltimore and Washington didn't change much in 1993. But the numbers mask longer-term changes in the way the warehouse real-estate business is done and the size and function of warehouses that will be developed in years to come.

The numbers say that 17.6 percent of warehouse space in Anne Arundel and Howard counties is available, the same as 12 months ago, according to a report from CB Commercial Real Estate Services Inc. Vacancies have risen to 12.6 percent, from 9 percent last year, because tenants at some buildings had given notice that they were moving out -- making their landlords put the space on the market -- without actually moving until this year.

But 1993 will be remembered as the year of the institutions, in which major pension funds and institutional investors continued to move heavily into the warehouse market in Howard and Anne Arundel counties, often at the expense of local developers who sold their projects on the cheap.

"They moved in because the opportunity presented itself, because of a lack of liquidity in the development community," said J. Richard Latini, a CB Commercial broker and co-author of the report. "What they do will decide which direction the market goes in."

Another reason why the institutions are moving into building ownership after years of playing mostly as lenders is the capital base of pension funds is growing.

"They can't put it all in bonds, they can't put it all in stocks, so they put some percentage of it in real estate, Mr. Latini said.

One of the biggest transactions came this year as AMB Institutional Realty Advisors of San Francisco bought the 488,000-square-foot Techwood Industrial Park in Hanover from an affiliate of Trammell Crow Co.

Mr. Latini said TCW Realty Advisors of San Francisco owns about 3 million square feet of warehouse space in the two counties, and Alex. Brown Kleinwort Benson Realty Advisors Corp. of Baltimore owns about 1 million square feet. The amount of warehouse space in the two counties is about 23 million square feet, he said.

The trend is not new. Mr. Latini said more warehouses went under institutional control in 1991 and 1992, highlighted by TCW's purchase of several projects from Leroy Merritt, a Woodlawn developer.

"Most of [the new owners] have responded to what they have to do" to land tenants in a still-depressed market," Mr. Latini said. "Where they have had to cut, they have cut. They have the pockets to be competitive."

Another big change is that warehouses are getting taller. Advances in warehouse automation are allowing users to use technology to do the job that ordinary forklifts have always done. That means warehouses with very narrow aisles (hence the name "VNA warehouses") and ceilings of 28 feet to 30 feet.

One of the year's biggest warehouse deals was Alcon Laboratories Inc.'s deal to lease a facility in Elkridge with 30-foot ceilings, Mr. Latini said. And one tenant whose name Mr. Latini would not disclose is looking for a facility with ceilings as high as 45 feet.

That means a headache for landlords who own the 17 percent of warehouse space that is available for lease in the area, he said, because some tenants won't want facilities built to 1980s standards.

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