Industrial real estate activity recorded explosive growth in the Baltimore area this year, furthering investment interest in warehouse space and leading some analysts to predict speculative building may be on the horizon.
In all, more than 6.45 million square feet of industrial space was absorbed -- or taken off the market through leasing activity -- in 1994, according to year-end figures compiled by Casey & Associates Inc. That represented a five-fold increase from the activity level last year and shaved the vacancy rate to 13.5 percent, the lowest level in five years.
The local industrial real estate market is particularly important because it is considered a bellwether of the local economy. Much of the year's industrial activity, for example, came from retailers, such as Office Depot Inc., Fila Inc. and Woodward & Lothrop looking to support expanding local operations.
"The warehouse market in general is the first to recover among property types, so we view this as a harbinger of things to come," said Thomas C. Jackson, Casey's director of research.
The 1994 results compared with a vacancy rate of 17.95 percent a year ago, when 1.31 million square feet had been absorbed marketwide. Casey's study tracks 1,655 buildings containing 120 million square feet.
As a result of the booming market, rental rates in the Baltimore-Washington corridor, which contains the bulk of industrial space in the area, climbed 11 percent this year, comparable with rates achieved in 1989, said Matthew J. Ryan Jr., a Casey vice president.
Mr. Ryan and others predicted the vacancy rate for larger, newer buildings in the corridor -- currently standing at 7.5 percent -- will drop to about 5 percent early next year.
Among the year's largest industrial lease transactions were: PTP Industries Inc./Medo Corp.'s 635,000-square-foot lease of the former Montgomery Ward & Co. warehouse space in the city; and Woodward & Lothrop's 295,000-square-foot commitment for the Zamoiski Co.'s headquarters, also in the city.
While leasing activity enjoyed a resurgence, the amount of industrial building sales followed suit.
In all, 3.66 million square feet were sold in 1994, for $73.6 million, according to Casey's report. The biggest sale included U.S. Land Resources' $24 million purchase of an 800,000-square-foot distribution center in Harford County.
In general, the area's industrial market has remained strong because of its strategic mid-Atlantic location and proximity to the port of Baltimore, large consumer market, highway network and available work force.
Those factors also contributed to a number of notable projects begun this year for specific tenants, including Time Warner Inc., Commerce Corp. and Goldwell Cosmetics USA Inc. Together, the three projects represented an investment of $72 million and will contain 1.2 million square feet, generating roughly 500 new jobs.
With the surge in leasing and development, a number of out-of-town institutional investors have also stepped up their activity here. Prentiss Properties Inc., Cabot Partners Inc. and AMB Institutional Realty Advisors acquired or contracted to purchase roughly $65 million worth of real estate in 1994.
That interest has caused sales prices for existing industrial projects to rise, approaching the amounts required to replace buildings. Two years ago, by contrast, sales occurred at 50 percent of their replacement costs.
"Industrial product is perceived to be a relatively safe investment, because it's ridden out the storm without a dramatic drop in value," said David P. Scheffenacker Jr., executive vice president of Preston Partners Inc.
Looking into 1995, many analysts conclude that as the amount of available space diminishes and rental rates inch upward, speculative development will once again become an option for some financially strong developers.
Speculative development virtually disappeared four years ago with the downturn in the economy and the subsequent collapse of the local commercial real estate market.
"If you look at the leases and acquisitions pending, the numbers are getting closer to generating a couple of speculative buildings," said J. Richard Latini, a Colliers Pinkard vice president.