Commercial Real Estate and Office Space Market in Maryland
Maryland benefits from proximity to the nation's capital city and to several affluent states and is known for having a business climate that is supportive of entrepreneurs and small-sized business owners (1). The local real estate market is an attractive destination for firms large and small, as the following market insights show.
Office Space Market
The city of Baltimore is home to the largest and most active office property market in Maryland, although there are also notable pockets of real estate activity in cities like Rockville, Frederick, Columbia, and Bethesda and along the Pike Corridor.
In the Greater Baltimore area, important job gains in office-based sectors have brought about increased demand and pushed average rental prices up to an average of $22.44 / sq ft / year. Vacancy rates have decreased slightly from 14.1 per cent in 2014 to 13.9 per cent in 2015. The general trend in the Baltimore office market entails a tightening of the Class A sub-market, since availability for this type of office floor space is at its lowest since 2007. On the other hand, the Class B market has softened across metro Baltimore with the exception of properties in the CBD. Another important trend refers to the decrease in average property size of the most recent deals, as leasing activity has been marked by demand for properties of 25,000 square feet and under. Overall, activity levels are at their healthiest in the southern districts of Baltimore city, downtown Columbia, Howard county, and Anne Arundel county (2).
A 2015 market insight report published by the local Cushman & Wakefield office pointed out that the office real estate market in suburban Maryland has remained mostly unchanged over the past 12 months. The report showed that vacancy rates across all property types have increased to 22.1 per cent, whereas rent increases and activity levels remain stable. In this market sub-sector, the trend seems to suggest that tenants are showing preference for small office units, as many firms are choosing to downsize, therefore causing a surge in vacancy rates. Across all suburban sub-markets, direct asking prices currently average $27.10 / sq ft / year, although they are particularly high along the Pike Corridor ($29.08), Bethesda ($40.06), and Rock Spring Park ($30.34). At the lower end of the scale we find office properties in Montgomery County, especially in Laurel ($18.54) and Landover ($20.27). In terms of future growth, the most promising suburban areas include Rockville and the I-270 Corridor. The report also highlights the most recent trend with regards to the occupier base, since traditionally the key occupiers of office space in suburban Maryland were companies in the professional and business services. However, this sector has been marked by job losses that have had a moderate negative effect on the local office property market. Decreased activity levels have been somehow compensated for by a higher number of transactions coming from tenants in industries like education, transportation, and healthcare (3).
Click here to find office space in Baltimore and Bethesda.
Retail and Industrial Space Markets
Market analysts at CBRE have reported positive growth across the retail property market in Maryland. The trend is particularly notorious in the Baltimore Annapolis area, where major retailers have either relocated to larger premises or have set up base in the area for the first time. The most important transactions in this real estate sub-market have come from grocery chains and fashion retailers (including Zara and The Gap). Maryland's excellent transportation links have also facilitated the development of the industrial property market, which has seen a 56 per cent increase in the number of tenants looking for suitable properties in the metro Baltimore area (4).
Data published by Colliers International shows that construction activity for industrial space is on the rise, mainly to cater to the nearly 200 tenants that were looking for industrial floor space during early 2015. Absorption levels in this property sub-market remain markedly high, since demand is still peaking despite the fact that more than 4.5 million square feet of space were delivered during 2014. Demand for industrial flex space is also on the rise (5). Rental rates are at their highest in Howard county ($9.5 / sq ft for wholesale and distribution space), Carroll county ($7.07), and Anne Arundel county ($5.75). R&D and flexible industrial space commands the highest rental values in Anne Arundel ($20.22) and Howard county ($15) (6).
Tax Breaks, Business Incentives and Support
The Maryland Department of Business and Economic Development offers industry-specific tax credits to companies involved in biotechnology, research and development, and the production of cellulosic ethanol. In addition, tax credits are available to businesses based in Enterprise Zones and for properties part of the Brownfield Revitalization Program. Real estate tax credits also apply to higher education institutions that sign up for the Regional Institution Strategic Enterprise Program. Further incentives are available through the Maryland Economic Development Assistance Authority and Fund (7).
(6) http://www.colliers.com/-/media/files/united states/markets/greater baltimore/industrial market reports/1q2015_cib_industrial.pdf