The discernable dip in the volume of industrial leasing activity in the greater Baltimore Metropolitan Area this past year has not lessened optimism among owners and investors of this asset class. Leading reasons for the upbeat view include: the diminishing volume of new product under construction, the still low 7.4 percent overall vacancy rate, record high yet stabilizing average asking rents of $10.54 per square foot triple net, and the fact that 10 million people are not likely to relocate from the fourth-largest combined Metropolitan Statistical Area in the country any time soon.
CoStar Group and MacKenzie Commercial Real Estate Services report that among the 266 million square feet of Class A. B and C flex and industrial space, there has been negative absorption of approximately one million square feet of space year-to-date, including nearly 300,000 square feet this past quarter. The unfortunate news of GXO Logistics closing a 571,000-square-foot distribution center in Harford County, and laying off more than 175 workers has been offset by Conair’s decision to lease more than 2.1 million square feet of space and hire more than 700 employees, in the Hagerstown area, which is the largest industrial lease this year-to-date.
In addition to the Conair deal, more than 700,000 square feet of new industrial leases have been signed in the Hagerstown market since June. Construction is nearly complete on MCB Real Estate’s two-building, 1.5 million-square-foot Curwood Logistics Center and tenant activity has been strong in the one million-square-foot regional occupier category.
Fifteen new buildings, totaling 1.7 million square feet of space, were delivered to the market last quarter. That considerably slower pace can be attributed to perceived softness in the market, the high barrier to entry given the lack of properly zoned land, rising interest rates, the rise of the NIMBYs, and rising construction costs which have placed several ready-to-go projects on hold.
Leasing activity across the board has resorted to pre-pandemic levels, according to Daniel Hudak, Senior Vice President and Principal for MacKenzie. “The region remains attractive to e-commerce companies interested in serving the robust location that can reach one-third of the US population within a one-day truck drive, as well as having access to a highly trained and fertile labor force that ranks #5 in the highest workforce of logistics nationally.
“Additionally, the State of Maryland continues to invest in the Port of Baltimore. In 2022, the port added four more new Neo-Panamax cranes to move containers and it remains the #1 roll-on roll-off cargo port in the country.”
Reduced leasing velocity is further evidenced by the 1.9 million square feet of space leased last quarter, nearly a 40% decrease compared to the 3.1 million-square-foot total in Q3 2022. On the bright side, recent highlights include Electrolux USA’s decision to extend its nearly 700,000-square-foot lease in Harford County and Floor & Décor’s announcement last quarter to add a second distribution building at Tradepoint Atlantic, adding 165 new full-time jobs.
“Where lease negotiations previously operated from a ‘take-it-or-leave-it’ perspective from landlords, there are now signs of willingness to negotiate with tenants,” Hudak added. “Owners have become a bit more aggressive in lease negotiations, with an increased amount of rent abatement and the offering of additional tenant improvement dollars.”