MILITARY BASE SHIFT BRINGS BOOM TIMES TO HARFORD

THE BALTIMORE SUN

Just outside the main gate of Aberdeen Proving Ground, construction workers are finishing up a three-story building's brick exterior, preparing to install windows and divide the vast interior into offices. Nearby, a cleared parcel sits ready for a second building to start soon - even though the developer has yet to sign up a single tenant.

The work at North Gate Business Park symbolizes the rush to build offices in Harford County as the long-awaited influx of jobs from a nationwide military base restructuring nears. Preparation or construction in at least half a dozen office parks near the U.S. Army post has made the area one of the few in Maryland where developers are scrambling to meet growing demand. In some cases, they're even building "on spec," before any leases are signed.

Those scenarios, experts say, are largely unheard of during the recession, as most businesses are shedding space and forgoing expansion, and developers can't get credit to build.

"It certainly is unusual," said Stephen Blank, a senior finance fellow with the Washington-based Urban Land Institute. "It points to a perception of the inherent strength in the local economy and the local market driven by the base realignment issue, and what people believe will be the growth industry that revolves around it."

In a boost for Maryland's economy, the government is bringing 8,200 military and civilian jobs, mostly to APG, by 2011, with projections of 13,000 to 17,000 related contractor, subcontractor and supplier jobs to follow. Several thousand jobs are expected by the middle of next year. A first wave, including some of the top military contractors now supporting Army functions being moved from Fort Monmouth, N.J., began seeking space earlier this year. They're finding it in short supply.

"My office right now, and many of the brokers around town, we are shoehorning people into the places we've got," said James C. Richardson, director of the county Office of Economic Development.

Richardson says Harford's situation is unique. "In this economy, I cannot tell you anyplace else in the nation where this is going on right now."

David Baird, a senior managing director with Cushman & Wakefield Inc. in Baltimore, said the commercial real estate firm estimates a need for 8.5 million to 10 million square feet of space both on and off the Army post for workers coming by 2011. About 3.5 million square feet is planned for the APG grounds.

Some construction has begun. Baltimore developer St. John Properties has started work on five buildings, about 300,000 square feet in all, in a sprawling business park called Government and Technology Enterprise (GATE) on the Army base. And Columbia-based Corporate Office Properties Trust is developing North Gate, planned to have 850,000 square feet of offices, outside the base.

Still, Richardson said, offices will be in short supply. To meet demand by 2012, he said, the county needs another 2.1 million square feet of space. Now Harford has 6.6 million square feet of office and flex office space, with a 6.9 percent vacancy rate, but much of the vacant space is either not large enough or not well located to handle the incoming contractors.

The vacancy rate falls sharply, to 2.9 percent, if only the larger, higher-quality office buildings are included, according to Cushman & Wakefield's third-quarter office market report. Meanwhile, other metropolitan area counties are struggling with double-digit vacancy rates: 15 percent in Howard, more than 16 percent in Anne Arundel, more than 12 percent in Baltimore County and nearly 16 percent in Baltimore City.

"The [Harford] vacancy rate is very low, by any measure," Baird said. "The demand is coming, and the challenge to meet all of this demand is one of timing. The ability to meet the demand and build space has been complicated by the credit crisis and general financing that affects development."

Some demand will be satisfied by the 400-acre GATE project, slated to become a 2 million- to 3 million-square-foot research and development park. Construction under way by St. John includes two 75,000-square-foot, three-story office buildings, two "flex" buildings and one one-story office building, with the first construction to be completed by May and the rest by October. Jerry Wit, senior vice president of marketing for St. John, said the developer has signed a lease with defense contractor Raytheon Co. to occupy a three-story building and move in by October.

On Monday, St. John announced defense firm L-3 Communications' Command & Control Systems and Software will lease the other three-story building.

"The other 150,000 [square feet] has no tenants, but we want to be BRAC-ready," Wit said, so that when the Army's new 2.4 million-square-foot Command, Control, Computer, Communications, Intelligence, Surveillance and Reconnaissance (C4ISR) operation opens next year, "their subcontractors can open at the same time."

The developer was in a strong enough position to get financing for speculative construction at a time when the credit market collapse has made such financing a rarity.

Corporate Office Properties Trust, too, is doing speculative building. The real estate investment trust is finishing its first project in North Gate, an 80,000-square-foot building where MITRE Corp., a nonprofit systems engineering, research and development group, has leased 54,000 square feet and expects to move in by summer.

COPT broke ground on the second building Nov. 2 without tenants, and is designing the next group of three buildings to start by early next year. Demand has started to accelerate this fall as the government has validated contracts with defense firms.

Besides Aberdeen, COPT is building around Maryland's Fort Meade and in San Antonio with a total of 1.2 million square feet of offices under construction and another 1.5 million square feet to start next year - all spurred by demand from government agencies and contractors.

Other developers of planned business parks say they are ready to build, but need to sign up tenants first. Projects include Merritt Properties' plans for Aberdeen Corporate Center on Route 22, and Commons at Fieldside Village near Ripken Stadium in Aberdeen, slated for 500,000 square feet of offices.

Site work will start soon at James Run Corporate Campus at Interstate 95 and Route 543, which can handle more than 1 million square feet of development, including shops, a hotel and 850,000 square feet of Class A office. Construction of office buildings won't start until some tenants are signed. But developers feel confident that will happen by early next year, with the first buildings to open by 2011 in time for BRAC moves, said Baird, whose firm, Cushman & Wakefield, is handling leasing for the developer, James Run LLC.

At the Water's Edge Corporate Campus, a $60 million mixed-use project developed by Manekin LLC and Alex Brown Realty, a mix of six mid-rise and one-story office buildings have been completed and leased. Plans call for another mid-rise building and another single-story office.

"In both cases, we have the buildings fully designed and permits ready to be pulled, but we are waiting to get some pre-leasing before we start," said Cole Schnorf, senior vice president and director of development for Manekin. In their planning, developers are trying to determine whether spinoff jobs from BRAC will be closer to 10,000 or 20,000, he said.

Schnorf said Harford's proposed projects are part of 6 million square feet of development in the pipeline to meet BRAC demand. If all of it comes to fruition, "we'll be overbuilt," he said.

But there's likely to be at least a temporary shortage. "The feeling is the demand will outpace the supply for Class A office in that market," Baird said. "We will all get our share of demand."

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