Construction and leasing of office space in the Baltimore metro area topped more than 2 million square feet for the third year in a row, Colliers Pinkard said in its year-end report, making the past three years the best period ever for the area's office market.
At the same time, the vacancy rate in the metro area, including the commercial hubs of downtown Baltimore and Anne Arundel, Howard and Baltimore counties, decreased slightly to 14.2 percent from 14.9 percent in 2005, Colliers Pinkard said.
But demand for office space will likely level off next year because so much space has been taken in the past few years, and because job growth in information, financial, professional and business services appears to be slowing, the commercial real estate firm said. In addition, more than 2 million square feet of space is under construction, though nearly 70 percent of that is in the high-demand Baltimore-Washington corridor.
In 2006, about 2.28 million square feet of office space was built, while more than that amount - 2.36 million square feet - was absorbed by tenants. Every market but Baltimore and Howard County was able to absorb more space than was built. Office absorption is a measure of overall change in the amount of occupied space.
"The Baltimore market has been very fortunate with the growth of business and professional services firms, especially those related to homeland security and national defense," said Jeffrey Samet, a vice president and principal with Colliers Pinkard, an affiliate of Colliers International. "And the growing health care and educational firms as well accounted for some of the significant absorption."
Howard County led in new construction, adding 1 million square feet, or roughly 45 percent of the metro area's office construction.
Growing financial service, defense and health care firms, some attracted by the proximity to Washington, drove the growth in the region's most affluent county, Samet said. Howard County absorbed less than half that much space, 489,687 square feet, but that imbalance is likely temporary, Samet said.
"The Howard County market has been strong, and developers are responding to the demand, consequently more space ended up being built than could be absorbed," Samet said. "But we don't see that as a particular problem because the economy there is strong."
Baltimore absorbed nearly all of its new construction, 511,320 of the 524,973 square feet of space built. Two new office buildings were completed in the city - one small building at Clipper Mill and the city's largest new building, the 510,000-square-foot First Mariner Bank building at Canton Crossing. The building opened 67 percent pre-leased. Current or anticipated tenants include First Mariner, Thomson Prometric and CareFirst BlueCross BlueShield.
Alliant Techsystems Inc., the world's largest producer of solid-fuel rocket motors for the military and NASA, is moving the headquarters of its Mission Systems Group and 80 employees from Minneapolis to the new building in January.
Baltimore-Washington International Thurgood Marshall Airport ranked a close third to the city in new construction, adding 440,882 square feet over the year.
Samet said this is the first time the Baltimore region has had a run of three years of such growth - more than 2 million square feet in both construction and absorption.
He attributed the boom to a combination of strong demand by the financial services businesses and education and health care firms. "It's also a response by the development community that has the available capital to respond to that demand," Samet said.
Vacancy rates for the year ranged from a low of 2.88 percent in the greater Annapolis market to a high of more than 16 percent in Howard County and downtown Baltimore.
Baltimore's office market continued to attract investors looking for stable income and chances to redevelop, Colliers Pinkard said.