MARKETBEAT

OFFICE SNAPSHOT
BALTIMORE, MD
A Cushman & Wakefield Research Publication

Q4 2012

ECONOMIC OVERVIEW
Consumer behavior remained conservative in 2012 as economic uncertainties loomed surrounding the fiscal cliff. While concerns of tax increases and spending cuts represented another hurdle in economic expansion, service providers attempted to compensate with value-driven products. The national unemployment rate in November 2012, according to the Bureau of Labor Statistics (BLS), was 7.7%. Marylands preliminary November 2012 unemployment rate, at 6.6% continued to remain below the national rate; relatively unchanged from January 2012 (6.5%), as fiscal cliff challenges laid ahead.

OUTLOOK
Economic uncertainty will postpone major decisions in 2013 although some cautious optimism remains. There is anticipation of growth in the Howard County and Anne Arundel markets due to governmentrelated and cyber security tenants demand for large blocks of class A space. The landscape of the CBD is changing as the office-toresidential conversion trend continues. Overall vacancy will increase due to 196,700 sf of scheduled deliveries. Sales will not reach the heights of pre-downturn activity; however, it will be another year of high transactional volume as the opportunistic purchasers from the crisis years-late 08, 09 and 10- look to cash in on rebounded pricing across asset sub-classes. STATS ON THE GO
Q4 2011 Overall Vacancy Direct Asking Rents (psf/yr) YTD Leasing Activity (sf) 14.5% $24.48 2,352,037 Q4 2012 15.2% $23.06 2,078,457 Y-O-Y 12 MONTH CHANGE FORECAST 0.7pp -5.8% -11.6%

SLIGHT DECREASE IN LEASING ACTIVITY

The Baltimore office market at year-end 2012 had a year-to-date leasing activity of 2.1 million square feet (msf). Leasing decreased almost 12.0% from the fourth quarter of 2011to the fourth quarter of 2012. The Howard County South and Baltimore CBD submarkets each posted leasing activity figures which exceeded 300,000 square feet (sf). In the second half of 2012, the Howard County submarket year-to date leasing activity increased from 165,149 sf to 391,320 sf by year-end 2012 as government sector demand for quality increased. Significant new lease transactions during the fourth quarter in the Baltimore CBD and Howard County South submarkets were: the 65,367-sf Baltimores City States Attorney Office lease at 120 E Baltimore Street and the 51,825-sf NewDay USA, LLC lease at 8160 Maple Lawn Boulevard, respectively. Tenant occupancies for these noted new lease transactions are expected by the first half of 2013.

DIRECT RENTAL VS. VACANCY RATES

$25.00 $24.50 psf/yr $24.00 $23.50 $23.00 $22.50 $22.00 2008 2009 2010 2011 2012 15.0% 14.5% 14.0% 13.5% 13.0% 12.5% 12.0%

CONSTRUCTION DELIVERIES REMAIN VACANT

At year-end 2012, year-to-date construction completions totaled 717,774 sf with an occupancy rate of 41.2%, an18.7 percentage point increase from 2011. A total of three construction completions had no preleasing activity, two of which delivered in the second half of 2012. Major tenant preleases were: U.S Army Corps Engineers 86,000-sf lease at 7205 Riverwood Road and XL Health Inc.s 68,470-sf lease at 6514 Meadowridge Road. XL Health Inc. took occupancy of its space when the building delivered in August 2012 while Ciena Corporation took occupancy of its 66,270 sf at 7031 Ridge Road in the fourth quarter. Harford County delivered 290,200 sf of class A office space with no preleasing activity as government contractor demand was not sufficient enough to keep up with this new supply.

DIRECT GROSS RENTAL RATE

DIRECT VACANCY RATE

LEASING ACTIVITY
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

msf

1.4

1.9

2.9

2.4

2008

2009

2010

2011

2012 YTD

LEASING ACTIVITY

Cushman & Wakefield of Maryland, Inc. 500 East Pratt Street, Suite 500 Baltimore, MD 21202 www.cushmanwakefield.com/knowledge

For more information, contact: Paula Munger, Regional Research Director 703 847 2785 Paula.Munger@cushwake.com

The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2013 Cushman & Wakefield, Inc. All rights reserved.

2.1

BALTIMORE CBD
The overall vacancy rate ticked up 1.2 percentage points from the beginning of the year due to PNCs 194,000-sf sublet at 2 Hopkins Plaza coming on the market. Year-to-date overall net absorption was negative 117,490 sf due in large part to tenant downsizing, particularly among financial services firms. Baltimore CBDs class A direct rental rate steadily declined throughout the year dropping 1.8% from Q1to Q4. The overall average direct rental rate for the Baltimore CBD was $20.91 psf, finishing $2.00 psf less than the average for the entire region. Leasing activity was down 25% from year-end 2011, finishing 2012 at 317,958 sf. Some notable lease transactions executed during the year included: Goodell, Devries, Leech & Dann LLPs renewal of 47,372 sf at 1 South Street, University of Marylands Faculty Physicians lease of 25,102 sf at 250 W Pratt Street, and Shapiro, Sher, Guinot & Sandlerss renewal of 24,166 sf at 36 S. Charles Street. 301 N Charles Street, 10 Light Street, and114 E Lexington Street will be undergoing residential conversions.

CBD OVERALL VACANCY RATES

25.0% 20.0% 15.0% 10.0% 5.0% 2008 2009
CLASS A

2010

2011

Q4 12

ALL CLASSES

CBD LEASING ACTIVITY

0.5 0.4 0.3 msf
0.3 0.3 0.3 0.3

0.2
0.2

0.1 0.0

0.2

2008

0.2

2009
CLASS A

0.2

0.2

2010

2011
ALL CLASSES

0.4

Q4 12

NON-CBD OVERALL VACANCY RATES

BALTIMORE NON-CBD
In contrast to the CBD, year-to-date overall net absorption for the non-CBD market finished positive at 442,565 sf with a majority of the positive absorption focused on Anne Arundel and Baltimore Counties. Much of the demand was derived from government contractors, particularly those involved in high-tech endeavors such as cyber-security and cloud computing. The Baltimore non-CBDs overall direct vacancy rate remained 2.1 percentage points less than the CBDs. Harford Countys overall vacancy rate jumped almost 12.7 percentage points to 38.9%, from the beginning of the year, due to 324,805 sf in new construction deliveries. Baltimore Countys average direct asking rental rate, at $20.91 psf, was over $3 psf less than the average for the Baltimore non-CBD market. All 2012 new construction deliveries were situated in the nonCBD market with an additional 820,700 sf under construction. Renewals accounted for 28.7% of leasing activity for 2012; the largest being Toyota Motor Credit Corporations renewal of 110,000 sf at 500 Red Brook Boulevard in Owings Mills. 2.1 msf traded hands during the year with a majority of sales occurring in the Baltimore County market.
msf

25.0% 20.0% 15.0% 10.0% 5.0% 2008 2009

CLASS A

2010

2011

Q4 12

ALL CLASSES

NON-CBD SALES ACTIVITY

2.0 1.5 1.0
1.9 1.6 1.6

0.5 0.0

0.5

2008

2009

2010

2011

2012

Cushman & Wakefield of Maryland, Inc. 500 East Pratt Street, Suite 500 Baltimore, MD 21202 www.cushmanwakefield.com/knowledge

For more information, contact: Paula Munger, Regional Research Director 703 847 2785 Paula.Munger@cushwake.com

The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2013 Cushman & Wakefield, Inc. All rights reserved.

2.1

BALTIMORE, MD
SUBMARKET INVENTORY OVERALL VACANCY RATE 18.1% 18.8% 9.9% DIRECT VACANCY RATE 16.2% 18.7% 9.9% YTD LEASING ACTIVITY UNDER CONSTRUCTION YTD CONSTRUCTION COMPLETIONS 0 0 0 YTD DIRECT NET ABSORPTION YTD OVERALL OVERALL WTD. AVG NET ABSORPTION ALL CLASSES GROSS RENTAL RATE* (117,490) (241,424) 185,466 $ 20.95 $ 19.77 $ 28.50 DIRECT WTD. AVG CLASS A GROSS RENTAL RATE* $ 23.01 $ 25.25 $ 33.65

Baltimore CBD Baltimore City North/West Baltimore City South

13,381,776 4,325,210 4,496,353

317,958 2,550 43,182

0 538,000 0

46,089 (238,472) 161,350

Baltimore City
Howard County North Howard County South Downtown Columbia

22,203,339
1,811,712 7,755,538 2,078,844

16.6%
8.7% 15.0% 15.6%

15.4%
7.0% 14.3% 15.5%

363,690
105,371 556,469 218,729

538,000
0 142,700 0

0
68,779 105,000 0

(31,033)
72,902 30,210 30,076

(173,448)
46,776 6,750 27,764

$ 21.87
$ 22.99 $ 24.65 $ 22.83

$ 24.85
$ 23.94 $ 26.90 $ 24.10

Howard County
Fort Meade District BWI District Anne Arundel County East Anne Arundel County South/Annapolis

11,646,094
4,550,926 3,704,373 755,512 2,308,268

14.1%
9.5% 17.5% 8.5% 10.7%

13.3%
9.2% 17.1% 8.5% 9.0%

880,569
202,525 41,554 5,100 69,006

142,700
140,000 0 0 0

173,779
0 87,830 0 0

133,188
205,871 54,250 3,464 (76,613)

81,290
202,780 46,395 3,464 (110,654)

$ 24.06
$ 29.60 $ 22.79 $ 19.45 $ 25.40

$ 25.93
$ 31.74 $ 23.90 $ 21.00 $ 28.85

Anne Arundel County

Baltimore County East Baltimore County North Owings Mills/Reisterstown Baltimore County West

11,319,079
868,351 9,680,069 4,422,650 3,055,760

12.3%
12.9% 13.2% 17.3% 12.4%

11.7%
12.7% 13.0% 17.3% 12.1%

318,185
763 339,387 69,853 69,263

140,000
0 0 0 0

87,830
0 131,360 0 0

186,972
27,456 144,924 12,910 33,840

141,985
27,456 170,197 12,910 27,451

$ 25.89
$ 20.28 $ 21.54 $ 19.96 $ 20.29

$ 28.73
$ 22.94 $ 23.90 $ 20.27 $ 23.50

Baltimore County
Harford

18,026,830
1,471,322

14.0%
32.3%

13.9%
29.5%

479,266
36,747

0
0

131,360
324,805

219,130
56,883

238,014
37,234

$ 20.91
$ 31.50

$ 22.77
$ 31.97

Harford County Non-CBD TOTALS

1,641,522 51,455,088 64,836,864

38.9% 14.5% 15.2%

36.7% 14.1%

36,747 1,760,499

0 820,700 820,700

324,805 717,774 717,774

56,883 519,051 565,140

37,234 442,565 (325,075)

$ 31.21 $23.96 $ 23.04

$ 31.97 $26.67 $ 25.61

14.5% 2,078,457

* RENTAL RATES REFLECT ASKING $PSF/YEAR

Cushman & Wakefield of Maryland, Inc. 500 East Pratt Street, Suite 500 Baltimore, MD 21202 www.cushmanwakefield.com/knowledge

For more information, contact: Paula Munger, Regional Research Director 703 847 2785 Paula.Munger@cushwake.com

The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2013 Cushman & Wakefield, Inc. All rights reserved.

MARKET HIGHLIGHTS Significant 2012 Lease Transactions

7205 Riverwood Drive, Columbia and 9055 Sterling Drive, Laurel 500 Red Brook Boulevard* 11000 Broken Land Parkway 6514 Meadowridge Road 7021 Columbia Gateway Dr. 120 East Baltimore St. SUBMARKET Howard County South Owings Mills Downtown Columbia Howard County North Howard County South CBD SUBMARKET TENANT U.S. Army Corp of Engineers Toyota Motor Credit Corp. Enterprise Business Partners XL Health, Inc. Tenable Network Security, Inc. Baltimore City States Attorney Office BUYER BUILDING CLASS A A A A A A PURCHASE PRICE / $PSF SQUARE FEET 239,500 110,000 76,308 68,470 65,975 65,367 SQUARE FEET

Significant 2012 Sale Transactions

11311 McCormick Rd, 10150 York Rd, 200 International Circle, 226 Schilling Circle, 201 International Circle, 7240 Parkway Drive, 8031 Corporate Drive, 9160 Guilford Rd and 9700 Patuxent Woods Drive (Part of the COPT Portfolio Sale of 24 Bldgs)

Howard County South, BWI District, Baltimore County East and Greenfield Partners, LLP Baltimore County North

$103,372,350**/ $114**

906,775**

One & Two Corporate Center 9841 and 9861 Broken Land Pky (Part of 4 Bldg Portfolio Sale)

Owing Mills Howard County South SUBMARKET

BECO Archon Group MAJOR TENANT

$14,250,000 / $108 $27,536,595** / $139** COMPLETION DATE

336,601
198,105**

Significant 2012 Construction/Renovation Completions

1 Olympic Place 225 Schilling Circle 8160 Maple Lawn Boulevard

BUILDING SQUARE FEET 157,712 131,360 105,000 95,200 BUILDING SQUARE FEET 538,000 140,000 86,000

Baltimore County North Baltimore County North Howard County South

Business Suites/WMS Partners EA Engineering, Science & Technology, Inc. NewDay USA N/A MAJOR TENANT

Q3 2012 Q3 2012 Q2 2012 Q4 2012 COMPLETION DATE

650 McHenry Road / Aberdeen Corporate Park - Bldg I Harford County

Significant Projects Under Construction

SUBMARKET

6100 Wabash Avenue 420 National Business Parkway 7205 Riverwood Drive

Baltimore City North/West Fort Meade District Columbia South

Social Security Administration N/A U.S. Army Corps of Engineers

Q4 2014 Q2 2013 Q1 2014

* RENEWAL - NOT INCLUDED IN LEASING ACTIVITY STATISTICS **$PRICE, $PSF OR SF NOTED REFLECT VALUES OF PROPERTIES IN OFFICE INVENTORY

Cushman & Wakefield of Maryland, Inc. 500 East Pratt Street, Suite 500 Baltimore, MD 21202 www.cushmanwakefield.com/knowledge

For more information, contact: Paula Munger, Regional Research Director 703 847 2785 Paula.Munger@cushwake.com

The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. 2013 Cushman & Wakefield, Inc. All rights reserved.