The Daily Record
by Mark R. Smith

Discussions with professionals in the commercial real estate industry about the 2005 market generally led to upbeat conversation and routinely concluded with optimistic predictions for 2006. Last year, vacancy rates for office space dropped and rumblings about speculative projects grew louder. The industrial market tightened, too; and while leasing in the flex market is holding its own, the product is gaining popularity with investors. Then there's the retail landscape, which is so hot that developers often think more of retrofitting and conversions, as brokers quiz existing tenants about their lease renewal plans. The sum of these parts equate to a market with considerable momentum heading into 2006.

Filling up

Baltimore's Central Business District (CBD) has shown strength since early 2005, which is a departure from earlier in the decade, said T. Courtenay Jenkins III, senior vice president with The Trammel Crow Co. The vacancy rate dropped from 18 percent last January to less than 15 percent today. The net absorption in the CBD means that vacant space is being backfilled quickly, such as when Saul Ewing left the Bank of America building at 100 S. Charles St. and its space was immediately filled by the legal offices for the state. That was 48,000 square feet right there, Jenkins said, noting that Saul Ewing moved to 500 E. Pratt St., as did Aon - which vacated 70,000 square feet at the Candler Building, which was backfilled by Constellation Energy and Johns Hopkins. Jenkins also discussed real strength in other parts of town, including to the west at Montgomery Park, where M&T Bank just leased 160,000 square feet for an operations center; and to the east at Canton Crossing, the new home of Thomson Prometric.

Also, rental rates per square foot in the CBD are rising from the high teens to low $20s in many cases, with some deals north of $30 for new product. The additional good news is the entry of new players into the market, like Microsoft and Chubb Insurance, which represent new absorption for the first time in a long time, Jenkins said.  John J. Hamilton, senior vice president with Corridor Reznick LLC, sang a similar tune. Noting that his firm's new 500 E. Pratt Street is filling up (like the CBD in general), he added that the northern sprawl was beginning. "We've been leasing a building at 1030 N. Charles Street, where the University of Baltimore (which is becoming a four-year school) recently leased about 10,000 square feet and an imaging center and a medical college are also new under roof".