Bill Holzman (left), Vice President, Retail Leasing, St. John Properties; Kate Jordan (middle), Principal, Lee & Associates | Chesapeake Region; and Michael Tait (right), Leasing Manager, The Howard Hughes Corporation, gathered in Downtown Columbia to discuss leasing pace in the Baltimore-Washington, D.C. marketplace, drivers expected to impact absorption in 2020 and the sustainable practices of developers among other topics.

LONG LEASING RUNWAY STILL ANTICIPATED

KATE JORDAN (KJ) – It seems like a distant memory but the federal government experienced a shutdown during the first two months of last year and leasing activity virtually stopped along with it. But, through a compressed timeline through the balance of the year, more than 9.5 million square feet of industrial/warehouse lease was absorbed which set a high-water mark locally. This was approximately 40 percent higher than the previous record.

BILL HOLZMAN (BH) – Despite all the negative national headlines, the velocity for retail leasing is consistent, and this section of the country remains insulated based on above-average demographics and a diverse economy. A sea change emerged after the last recession with reduced traditional retail, which was replaced by more service-oriented and amenity retail. We are now seeing a majority of users in the food, health and beauty, and fitness categories.

MICHAEL TAIT (MT) – The Howard Hughes portfolio consists of approximately 1.8 million square feet of office space. Over the past two years, we have experienced a 40 percent increase in leasing volume, which we attribute to the transformation that is occurring in this section of Howard County. Companies are attracted to the highly walkable, amenity-rich environment where you can park your car once.

PROLIFIC POCKETS AND WHY COMPANIES CHOOSE MARYLAND

KJ – Baltimore County and Harford County are seeing all the big-box absorption based, in part, on the availability of land. But, Maryland continues to win battles with neighboring states based on the extremely strong and highly-skilled labor market. There is a slightly different answer in the B/W corridor with requirements considerably smaller and more service-oriented companies that wish to have access to D.C. and its suburbs with a central hub.

BH – Retailers are gravitating to affluent sections of the state led by Annapolis and Columbia. They also want traffic during all dayparts, and office-only business parks lack evening and weekend activity. Residential neighborhoods face challenges during the day, so mixed-use communities tend to win out.

MT – Vacancy in our existing portfolio is about 8 percent, and we have been averaging a nearly 90 percent tenant retention rate over the last several years. With the delivery of 6100 Merriweather Drive, we are hitting the $40 per foot plateau, which is a high-water mark for this market.

STRONG ECONOMY = STRONG LEASING ACTIVITY

KJ – Sometimes I wake up in the middle of the night worried that brokers like myself are starting to lease ourselves out of jobs. Everything appears to be full, especially in the corridor, and we are getting maxed out. This past October, a logistics company from New York toured six local buildings. When they returned in January to continue their search, we learned that all six spaces were now spoken for.

BH – We’re seeing a flight to quality with retailers seeking the perfect combination of daytime, evening and weekend population. Retail is definitely getting tougher and tougher especially for the restaurant sector. All food and supply costs are rising, and cost of labor is certainly getting more expensive; however, restaurants feel constant pressure to keep prices from increasing, especially in the quick-serve and fast-casual sector.

MT – Among the anchor tenants in Downtown Columbia are MedStar Health; Pearson, billed as the world’s largest online learning and education company; and Tenable, a major cybersecurity firm. The competitive landscape for talented workers plays a significant role in every real estate decision, and many of these industries are feeling the pressure to be able to attract and retain the best and brightest in their industry.

BUILDING GREEN BECOMING SECOND NATURE

KJ – Although it is more difficult to practice LEED development in the warehouse/industrial sector, companies are doing their best to build green and be environmentally conscious. It is becoming less of a goal and more of an assumption that the building will be green. It is simply the way business is done now and, the fact is, developers cannot construct a building these days that is not environmentally friendly.

BH – Retail tenants are noticing and commenting about our automatic light switches that only turn on when space is in use. All of our lighting is LED, and I cannot remember the last time we used a fluorescent tube. Paints and carpets are low VOC. Previously, we priced interior green construction as an upgrade. That question doesn’t come up anymore – it is assumed that everything will be sustainable.

MT – Everything we build is now LEED Silver or higher, and we strive for gold. We are creating an entire city and have been very thoughtful about every aspect of office, retail and residential. This reflects in our work to build new stormwater management systems, walkways across streams and to replant trees.

THINGS THAT KEEP YOU UP AT NIGHT

KJ – Industrial remains the darling of the real estate market, but there has been a compression of ownership groups nationally and capital continues to roll in our market because the fundamentals are so strong. Tenants and owners look at our real estate and perceive us as still relatively inexpensive. At what point does too much money enter the market and investors start to overpay for assets?

BH – Like everyone else, an economic slowdown which impacts consumer confidence and ultimately hurts retail when people stop treating themselves to gym memberships, eating out or getting personal services.

Originally published in March/April 2020 NAIOP-MD InSites.