Higher density, residential development and mall redevelopment are driving growth in the Hunt Valley submarket. Photo courtesy of MacKenzie Commercial Real Estate Services.
Somewhere in the mix of leasing contracts, vacancy trends, new construction, renovation projects and shifting activity across product types, developers are seeking to cultivate the ecosystem that will turn formerly sleepy suburbs into thriving submarkets.
Sean Doordan, Executive Vice President of Acquisitions and Growth at St. John Properties, believes St. John and its partners are crafting those strong, community-wide conditions at their large, mixed-use developments in Anne Arundel, Baltimore, Howard and Prince George’s counties. He points to the example of Greenleigh in White Marsh. This spring, St. John Properties signed contracts to lease 13,365 square feet to the Kennedy Kreiger Institute and another 12,126 square feet to a pair of construction companies. Meanwhile, the 1,000-acre development is posting strong residential growth and all that activity is fueling interest in Greenleigh’s retail space.
“Retailers want to be there as they see the area’s demographics evolve and they realize that folks living and working in Greenleigh will need and support a range of food and retail services,” Doordan said.
In this peri-pandemic era, owners and developers of commercial real estate properties in Maryland’s suburbs are contending with a mix of market forces. There’s the soft office market, desires to locate offices closer to workers and heightened interest in leasing high-quality workspaces in modern environments. There’s the housing shortage, worker shortage, issues around commute times and competition from major, urban developments. Combined, those forces are challenging suburban properties to find ways to be convenient, affordable, amenitized and cool.
Certain suburban properties were designed to meet those needs and some others are retooling to meet market trends.
“There has been a bit of a flight from the city out to the counties in recent years,” said Mike Mull, an office and industrial specialist with KLNB.
New, mixed-use developments, like Greenleigh have become strong points in suburban markets. Photo courtesy of St. John Properties.
That migration has created opportunities especially for new, amenitized office properties in mixed-use areas. For example, vacant office space at the Quarry Lake at Greenspring attracted a number of tenants who were leaving the city, Mull said.
The ongoing Towson Row development, the re-developed Towson City Center, expansion of Towson University and other nearby office, retail and residential projects have “created a critical mass of people” in that area and propelled Towson from “a sleeper market” to the focus of strong leasing and investment interest, said Joe Nolan, Principal with KLNB.
Although Hunt Valley has experienced office leasing downturns in the past, the redevelopment of Hunt Valley Towne Centre, the construction of multifamily properties nearby and the development of a senior living facility are creating the higher density, highly amenitized, mixed-use region that many employers desire.
“They created their own little township out there,” said Patrick Smith, Vice President of MacKenzie Commercial Real Estate Services.
Consequently, some clients who are looking for office space, now insist they only want to look at spaces within walking distance of Towne Centre, Smith said.
That widespread desire for denser, more amenitized, mixed-use environments has inspired some owners to reenergize old, suburban buildings.
Renovations at Executive Plaza helped Hill Management attract new tenants to older buildings. Photo courtesy of Hill Management.
“Hill Management has done a very good job on McCormick Road,” said Matthew Mueller, Senior Vice President and Principal at MacKenzie Commercial Real Estate Services. “They have a complex of older buildings. But they put some improvements into them five years ago, gave them a unique look and put a mall underneath the buildings with conference facilities and a gym. Those attributes have attracted tenants.”
In the midst of the pandemic while many tenants were working remotely, Hill Management decided to “accelerate our already ongoing building reinvestment strategy, with an emphasis on our Baltimore County office properties,” said Danielle Beyrodt, Vice President and Chief Operating Officer. “The upgrades we completed have enhanced both interior and exterior settings, and attracted the attention of existing and prospective tenants.”
For example, Executive Plaza in Hunt Valley offers onsite amenities such as a daycare center, dining options, a full-service branch of the USPS, drycleaning/laundry services, outdoor gathering areas and a full-service gym with classes. At many of their other Baltimore County office buildings, Hill Management has followed suit with on-site delis, gyms and tenant lounges.
Those investments have paid off as companies have reevaluated their office needs.
“Based on the continued velocity of our leasing activity, it is clear that companies have recognized the benefits of moving into or expanding their presence within the northern Baltimore County submarket — particularly along the Deereco Road corridor and Hunt Valley,” Beyrodt said. “This is happening for a variety of reasons, including fully renovated office buildings with substantial amenity packages, free parking, open spaces, and the benefit of shorter commuter times from their nearby places of residence. Across the board, an outside-the-beltway location is exceedingly more comfortable for employees and better for the corporate bottom line.”
In Columbia – where industrial and retail leasing has remained strong and “office leasing is holding its own” – creative CRE professionals are creating new opportunities by repurposing some buildings, said Abby Glassberg, Principal at KLNB.
Amenities plus green space aids leasing at suburban properties, such as Goodier Properties’ medical campus in Columbia and the Quarry Lake at Greenspring. Photo (top) courtesy of Goodier Properties.
“The buildings on Old Dobbin were sitting with vacancies longer than they should, even before the pandemic,” Glassberg said. “But then Goodier Properties bought six buildings, brought in a medical tenant and now they are creating a successful, medical campus. That’s really interesting because those buildings were probably obsolete in that location many years ago.”
At the same time, strong and sustained demand for industrial and flex space has buoyed some suburban markets.
Limited opportunities to develop new industrial space has driven significant rent growth in existing buildings.
“In some cases, depending on location and size of the space, we have seen some tenants’ rent triple,” Smith said. “It has definitely doubled in the past 24 months and annual increases are now 4 percent where they were typically 3 percent.”
Flex buildings were largely spared from pandemic-induced downsizing and have experienced growing demand from certain client types.
“The beauty of flex is that users who occupy flex buildings are typically doing something that cannot effectively be done in a home setting, and consequently we’ve seen positive growth since the pandemic,” Doordan said.
“Companies are being attracted by conveniently located, well priced and increasingly attractive flex developments,” he said. “If you look at the evolution of flex, you will see that we have incorporated greater glass lines, LEED components, enhanced landscaping and we are building comprehensive business parks with walkability and amenities included.”
Suburban flex buildings, Doordan added, have benefited from a multitude of growing client types, including veterinarians and pickleball venues. Veterinarians are increasingly leasing flex space and taking up to 30,000 square feet to build out full-service, veterinary ER hospitals.
Also, “new pickleball business ventures have the growing need for indoor facilities in flex buildings,” Doordan said, adding that the versatility, column spacing, parking capacity and nearby amenities have made flex properties ideal locations for the sport.
Despite those strengths, suburban property owners are struggling with soft office demand and the flight to quality, which poses challenges for Class B and C buildings. Stand-alone B and C buildings that lack internal or nearby amenities are being hit especially hard. Submarkets where those types of buildings are common are feeling hard impacts from current office trends.
In mid-2020 just after the pandemic began, the Owings Mills submarket posted an office vacancy rate of 22 percent, Mull said. In June 2023, the official rate was still 22 percent, but the real rate jumped to 27 percent due to the sublet market.
High density, modern design and proximity to employment hubs has driven growth at Maple Lawn. Photo courtesy of St. John Properties.
“According to my reports, Owings Mills went in the last three years from having only about 5,000 square feet of sublet office space on the market to about 150,000 square feet of sublet space available now and that’s just Owings Mills,” he said.
Refilling that space could be difficult given current market conditions.
“Employers need properties that are attractive to workers in order to entice them back to the office. It is harder to do that in a freestanding building in the suburbs,” Nolan said.
While some suburban properties benefited from companies leaving downtown Baltimore in recent years, suburban buildings are now losing some tenants to new or recent, mixed-use developments in the waterfront areas of the city.
“For example, Capital Funding Group, CFG, is leaving a freestanding building in the suburbs and leasing 100,000 square feet on the Baltimore Peninsula,” Nolan said.
Similarly, GWWO Architects has left the Stieff Building near the Jones Falls and relocated to Locust Point “because they want to be in a mixed-use development where their employees would be excited to work,” he said. “RCM&D Insurance in Towson is breaking up their operations and joining GWWO at McHenry Row in Locust Point because that is where young employees want to be.”
And the list of relocating businesses goes on.
In June, Greenburg Gibbons consolidated their Owings Mills and Annapolis operations by moving into 14,000 square feet at the Collective at Canton.
“It’s a cool, timber building. It has new apartments and a park nearby and all kinds of retail at Canton Crossing, said Nolan. “Examples like these don’t bode well for the suburbs.”