Pushed by a strengthening economy and a dearth of new construction, the amount of vacant office space in the Baltimore area fell in 1996 to its lowest level in a decade, according to a study by a leading local real estate company.
With the drop in the amount of available office space in the metropolitan area to 13.9 percent, several analysts declared an official end to the commercial real estate depression that plagued landlords earlier this decade.
"I'd say it's officially over, yes," said Duke S. Kassolis, a Rouse Co. senior vice president and its director of office and mixed-use operations, which include the downtown 28-story Legg Mason Tower, the five-story CenterPointe building in Hunt Valley and numerous office projects in Columbia.
"And that's because there's been virtually no new building. The important thing to remember is that even with modest employment growth we've experienced, there's been considerable pressure on available space."
Although the office recovery has been incremental since 1994, mirroring a nationwide trend, the results for the past year represent the best evidence that the metropolitan area has finally shaken its downward spiral in occupancy rates.
The phenomenon likely will lead to higher state tax assessments and, in turn, higher property tax revenues for local governments.
"What we've seen in the past year is the result of a tremendous impact generated by the suburbs, where available space continues to be removed from the market," said Jeffrey B. Samet, vice president of Colliers Pinkard, the real estate company that compiled the annual study.
The rise in occupancy rates -- especially in newer, so-called Class A premier buildings -- also augurs well for the year ahead, leading various real estate developers to consider building new office buildings for the first time since 1988.
Rouse, David S. Brown Enterprises, the Baltimore Gas and Electric Co.'s Constellation Real Estate Group and Greenebaum & Rose are all planning new projects in Columbia, Owings Mills, Linthicum Heights and Pikesville, respectively.
But real estate executives say lenders are much more cautious now, unlike the late 1980s, when Wall Street, banks and insurance companies provided abundant capital for new construction and contributed to significant overbuilding.
"We believe that while new buildings will be completed late next year, they won't distort the market," Samet said. "The capital markets will constrain the level of activity, because of the area's uneven job growth of the past few years."
While vacancies have fallen precipitously, rental rates in many local areas have failed to reach levels of a decade ago, said Robert A. Manekin, president of Casey & Associates Inc., a Baltimore-based real estate brokerage firm.
Howard County's 6.2 percent office vacancy rate continues to be the lowest in the area, reversing its standing of more than 30 percent three years ago, when the county ranked as the worst performing submarket.
Howard's performance continued to outpace that of Baltimore City, although the downtown ended six consecutive years of rising vacancies, the result of large lease signings by Alex. Brown Inc., Legg Mason Inc. and Crestar Financial Corp.
The downtown's 20.2 percent vacancy rate was the highest of the six jurisdictions tracked by Pinkard. Yet the potential for improvement spurred several major downtown building sales in the past year, including One Charles Center, the Candler Building and the Blaustein Building.
Five years ago, by comparison, the vacancy rate downtown was roughly 25 percent. While the improvement since 1991 appears slight, the downtown has strengthened overall as businesses have snapped up space in signature buildings, primarily those ringing the Inner Harbor. Some estimates put the vacancy rate in Class A Inner Harbor properties as low as 3 percent.
The downtown continues to suffer, however, from an abundance of older buildings.
Pub Date: 12/05/96