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2nd quarter

BALTIMORE METROPOLITAN AREA market report


OFFICE | INDUSTRIAL | RETAIL | CAPITAL MARKETS | ECONOMY 2017

www.MACKENZIECOMMERCIAL.com
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Table of Contents

Capital Markets ........................3

Investment Sales..................... 5

Construction........................... 6

Residential Development .............8

Office Market .......................... 9

Retail Market .......................... 14

Industrial Market ..................... 18


capital markets SECOND QUARTER | 2017

Capital Outlook
Contributed by William E. Goetschius, VP, MacKenzie Capital, LLC

Capital remains readily available for borrowers throughout the capital stack in spite of this rising interest rate environment,
although leverage is a key concern for lenders and investors, but for different reasons. Debt funds and Wall Street lenders
are stepping up to fill demand not met by regional banks and life insurance companies, but they are charging for it. While the
availability of capital will remain robust, we expect pricing for it to rise over the next year and lending standards to tighten further.
As of this writing, the 10-year UST yield is 2.37%, which is exactly 1.01% higher than it was one year ago. The 10-year UST
is a key index on which commercial real estate loans are priced and is believed to be the “risk-free” rate of return. By this
methodology, a lender today would price their risk 1% higher to make a “risk-free” loan today than they would have a year ago.
In an illiquid and inefficient market this would leave borrowers with few choices, but in this market, where capital is plentiful,
borrowers are still in a good position.

10-YEAR UST VS. LONG-TERM AVERAGE

According to Real Capital Analytics, investment sales volumes were down 12% year-over-year in May and 15% for the year
to-date. We believe this is due largely to the impact of rising interest rates and tighter loan underwriting, constraining the
percentage of the property’s purchase price an investor can finance. When financing, a purchase is cheaper and easier, the
investor can pay more for the property, which leads to a higher cap rate for the property. The old adage, “the only way to get
rich in real estate is to get old” was true over the last four decades as real estate has become an institutional asset class and
more ways have been invented for capital to be available to these investors. As the availability of capital rises, often the price
of the real estate rises accordingly.

Anecdotally, we believe that a big reason why 10%


investment sales volumes are down is that the
9%
investors buying the properties can’t seem to
make sense of the prices owners are asking. This 8%
disconnect between sellers’ and buyers’ expectations 7%
10-Year UST Yield

has led sellers to take property off of the market, 6%


or deals to take longer to consummate than they 5%
anticipated. Deals are harder to find, and once
4%
they are found, the financing component of the deal
remains a key variable of the business plan as the 3%
impact of leverage can make or break an investment 2%
return. This is true for development financing as 1%
well. 0%
Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Jan-14

Jan-16

It’s not all doom and gloom however. Prices for


all property types are flat-to increasing with the
10-Year UST Yield 10-Year UST Long-Term Average Yield
exception of retail. In May, deal volume for the
suburban office sector was up 3% year-over-year,
which the hotel and industrial sectors grew more
than 20% year-over-year. On the other hand, the
sale of apartments continues to fall; apartment sales
volumes are down 25% year-over-year. Office sales
were down 5% year-over-year in May.

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 3
capital markets SECOND QUARTER | 2017

US INVESTMENT SALES VOLUME YOY

We anticipate a further softening of the investment sales market as the summer continues. Brexit and North Korean saber rattling
may drive international investors to the relative safety of the US treasury market, which may keep yields on Treasuries low
(yields are inversely related to price). Traditional lenders, wary of leverage risk, will respond by widening spreads or being more
selective, as we have seen them acting recently. One thing to bear in mind is that the average 10-year UST is 4.69%, so interest
rates, although higher than they were a year ago, are still well below the average rate over the last 27 years. Rates are reverting
to the mean, which we believe, is a healthy sign.

YEAR-OVER-YEAR CHANGE
300%

200%

100%

0%

-100%
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

MacKenzie Capital, LLC (“MacCap”) is a highly-regarded, boutique real


estate capital advisory firm that entrepreneurial commercial real estate
owners, developers, and investors rely on for their debt and equity capital
needs. For decades, our team of experienced advisors have successfully
arranged financing for small and large projects of all property types throughout
the country. Our creative, client-focused approach to advisory ensures that our
clients are given the hands-on attention and focus that only an independent
boutique firm such as ours can provide. MacCap is an affiliate of The MacKenzie
Companies, one of the Mid-Atlantic’s largest independently-owned full-service
commercial real estate firms that is based in Baltimore, Maryland.

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 4
Investment sales SECOND QUARTER | 2017

“Suburban office transactional volume continues to climb while cap rates have compressed slightly, due to increased single asset
transactions and investor demand for enhanced yields relative to industrial, multi-family and urban office assets.”
Please contact Don Schline at dschline@mackenziecommercial.com or (410) 494-6648 for additional investment sale background, information, and for analysis of your assets.

7.5%
CUMULATIVE HISTORICAL SALE VOLUME | BALTIMORE METRO
2013 2014 2015 2016 2017 Average Cap Rates
Billions

3.0

2.5

2.0

1.5
$343M sales volume
1.0

0.5

0.0
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
$93 Average price psf
Baltimore Metro Area, includes office, retail and industrial properties., 2nd Quarter 2017

INVESTMENT BUYER COMPOSITION BENCHMARK


Cross-Border Institutional REIT/Listed Private User/Other
OFFICE PROPERTIES 16.0%
24.0%
27.0%
8.0%
Volume: $111.9 million 46.0%
55.0%
12.0% 10.0%

22.0% 19.0% 25.0%


Average Size: 55,900 sf 6.0%
25.0% 24.0% 80.0%
10.0%
10.0%19.0%
Median Sale Price: $130/sf 18.0%
59.0%
36.0% 49.0%
45.0%
Average Cap Rate: 7.6% 15.0%
12.0%
33.0%

% Leased (Average): 78.3% 12.0% 11.0% 13.0% 18.0%


7.0% 15.0%
36.0%
2013 2014 2015 2016 201738.0% 2017
49.0%
10.0% 7.0%
RETAIL PROPERTIES 22.0% 25.0%
20.0% 19.0%
18.0%
15.0% 7.0% 5.0%
Volume: $67 million 36.0%
53.0% 25.0%
44.0%
Average Size: 13,971 sf 9.0%
43.0% 36.0%
9.0%

Median Sale Price: $182/sf 36.0%


73.0% 76.0%
41.0% 47.0%
Average Cap Rate: 7.4% 43.0%
23.0%
30.0%
28.0%
21.0%

% Leased (Average): 94.4% 11.0%


10.0% 13.0%
5.0%
2013 2014 2015
6.0% 20168.0% 2017 2017

2013 2014 2015 2016 8.0%2017 10.0%2017


INDUSTRIAL PROPERTIES 22.0% 25.0% 19.0%
10.0%
19.0%
Volume: $164 million 12.0%
49.0%

36.0% 15.0%
Average Size: 189,419 sf 49.0%
38.0%

Median Sale Price: $69/sf 53.0%


15.0%
9.0% 44.0%
Average Cap Rate: 7.4% 36.0%
23.0% 41.0%
21.0%
% Leased (Average): 64.6% 13.0%
5.0% 10.0% 6.0% 8.0%
2013 2014 2015 2016 2017 2017
* Data and graphs received from proprietary MacKenzie research, CoStar, and Real Capital Analytics.

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 5
uPCOMING pROJECTS & Construction SECOND QUARTER | 2017

CONTRACTING OVERVIEW
Joe Versey, VP of Business Development, MacKenzie Contracting &
ON THE HORIZON|Upcoming Projects Marty Copsey, President, MacKenzie Contracting
Selected sampling of current construction and proposed projects.

Harbor Point | City Center At the end of the 2nd Quarter and moving into the 3rd Quarter,
Harbor Point is continuing to develop the land between Fells Point and revenue and backlog continue to grow for most general contractors
Harbor East. The entire project is projected at $1.5 billion and aims for in our region. Whether it is office, healthcare, retail, or multi-
completion in 2022. 1405 Point, a multi-family tower, began construction
family property, there are considerable investments in real estate,
in early 2016 and will include nearly 18,000 sf of retail space when it’s
completed (aiming for late 2017). The boutique Canopy by Hilton will new construction, and renovations - not to mention infrastructure.
open in 2018 and will occupy the top four floors of Wills Wharf. The rest Office construction, retail, and healthcare are markets that have
of Wills Wharf will have 225,000 sf of office space. Harbor Point will also remained strong this year. As bank branches close, fast food
include a 4.5-acre waterfront park. Construction is currently underway at
the Central Avenue bridge and developers estimate this will open by Fall drive-thru restaurants emerge, and urgent care facilities are
2017. The bridge will connect the city to Harbor Point. popping up on every other corner. With the increase in available
work, subcontractors are being more selective in bidding, which
Port Covington | City Center
results in higher pricing. And while the construction industry
New planning documents were released this quarter concerning the latest
timeline for Port Covington. Phase I’s infrastructure is expected to break is enjoying the fruits of this demand, we remain cognizant of
ground summer or fall of 2018. Once infrastructure is set up, housing the fact that at some point, we could reach market saturation.
units and 700,800 sf of retail is expected to break ground in summer of The construction labor force has seen a marked difference in
2019. This will include 2,900 parking spaces. A hotel and 934,000 sf of
demographics over the past year. The construction workforce is
office space will break ground mid-2019, with a future completion date of
2024. Currently, infrastructure development is underway, and Sagamore aging as fewer young people are entering the construction field
Spirit has officially opened. The developer also recently released plans to as a career. This change in the labor pool, coupled with an influx
expand the light rail by two additional stations. of insufficiently trained workers, has begun to affect the industry,
Broadway Market | Baltimore City East and is worth keeping an eye on as the year continues.
Plans were submitted to Baltimore Development Corp. by Klein Enterprises
recently, proposing to convert the south shed into a 400-seat restaurant
and seafood market, and will partially demolish the north shed (currently
vacant), one of the buildings (15,000 sf) and parking lot, to convert the site
into a green space and public amphitheater for concerts. Klein Enterprises
will meet with tenants directly to offer relocation space to avoid similar
tenant upsets that happened recently at Cross Street Market. Residents’
main concerns seem to be the lack of parking areas in Fells Point.

Howard Row | Baltimore City West


Plans were recently approved to redevelop the 400 block of N. Howard
Street. Plans include retail space and 39 apartments. The site is
approximately 22,000 sf; retail space would take up 5,280 sf.
Greenleigh at Crossroads
McHenry Row | Baltimore City South
Phase 3 plans were approved this June. They include a Courtyard Marriott
hotel and a 60,000 sf office building with retail space. According to Mark
Sapperstein, the office space is already fully leased. They’re estimating
that tenants will be able to move into the office space by October 2018.

Annapolis Towne Centre | Annapolis


A new building is in the design phases. It will be both office and retail, three
stories tall, and will total 29,900 sf. This will be part of the undeveloped
land in the Towne Centre off of West Street.

Continued...
Two Merriweather

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 6
uPCOMING pROJECTS & Construction SECOND QUARTER | 2017

Office Properties Under Construction*


Currently Under Construction (QTD): 1,023,692 sf
DEVELOPMENTS Cont’d. Delivered (QTD): 275,762 sf Office Under Construction

Under Construction Deliveries


Little Patuxent Square | Columbia
Little Patuxent Square opened this May. The space has 158,000 sf of Class 9

Million SF
A office space, 10,000 sf of retail space, and 160 apartment residences. 8
Optum has taken the place of QSSI. Retail space now includes Howard
7
Bank and there are several tenant spaces available for lease.
6
Crescent / The Merriweather District | Columbia 5
Howard Hughes Corporation is still in the process of transforming this area 4
at One and Two Merriweather into a new development. The redevelopment
3
is located near the Mall in Columbia and will include One (200,000 sf
office building which is already open) and Two Merriweather (130,000 sf 2
office building coming in Summer 2017), and a future 300,000 sf office 1
tower, parking garage, and seven-story apartment building. -
2011 2012 2013 2014 2015 2016 2017
Greenleigh at Crossroads | Baltimore County East
Compared to Maple Lawn, Greenleigh is a $750 million project that
broke ground late 2016, and will encompass 200 acres. Construction Industrial Properties Under Construction*
plans include 400 single family residential units, 1,500 apartments and Currently Under Construction (QTD): 3,632,863 sf
Industrial Under Construction
Delivered (QTD): 512,516 sf
condominiums, 128,000 sf of retail space, and 428,000 sf of office space.
SpringHill Suites (Marriott) broke ground late February, and building Under Construction Deliveries
permits for the first residential units have been approved. The hotel is
16
estimated to be the first completed building in 2018.
Million SF

14
Sparrows Point | Baltimore County East 12
Plans were announced early April for a $30 million infrastructure
10
investment in addition to the redevelopment already underway. Plans
include the deep-water port on the waterfront, 100 miles of shortline rails, 8
manufacturing and commercial development. 6

White Marsh Land Developments | Baltimore County East 4


A recent plan for a 100-store outlet in White Marsh is on hold now that the 2
owner, The Lightstone Group, is considering selling the site after receiving
-
several inquiries. Baltimore County voters recently backed zoning that
2011 2012 2013 2014 2015 2016 2017
would allow the outlets to begin development. St. John Properties is
one of the companies interested in buying the space - 45 acres, which is
adjacent to their Greenleigh at Crossroads project. Retail Properties Under Construction*
Currently Under Construction (QTD): 670,981 sf
McCormick HQ | I-83 Corridor Delivered (QTD): 139,800 sf Retail Under Construction
McCormick & Co. is building a new headquarters building at 99 Shawan Under Construction Deliveries
Road in Hunt Valley. The building will be 320,000 sf, six stories, and will
cost roughly $100 million. It is currently in progress and aims for a mid- 5.0
Million SF

2018 completion date. 4.5


4.0
Edgewood Land Development | Harford County 3.5
Chesapeake Real Estate Group LLC acquired 101 acres in Edgewood, 3.0
Harford County from Prologis and they plan to build 400,000 sf of
2.5
warehouse space on it. The land is located at the Trimble and Emmorton
2.0
Road intersection.
1.5
Taneytown | Carroll County 1.0
Evapco, Inc. plans to build a new $15 million, 160,000 sf building next to 0.5
its current headquarters at 5151 Allendale Lane. The buildings are located -
on 13.9 acres. 2011 2012 2013 2014 2015 2016 2017
*Includes forecasted deliveries for later quarters in 2017

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 7
Residential Development SECOND QUARTER | 2017

MARYLAND HOUSING OVERVIEW


Robb Aumiller, President, MacKenzie Communities, LLC

While the median sale price of homes in Maryland has largely recovered to
its peak reached in 2007, new housing construction in the State still lags well
below its historical norm. This is despite surprisingly low inventory levels of
existing homes on the market and strong demand for housing in many parts of
the State. The reason new housing supply hasn’t kept pace with demand is a
function of State regulations and construction pricing.

During the downturn which started in 2007 the State instituted many “smart
growth” policies which greatly restricted development of outside land served by
public water and sewer. Additionally, as the economy rebounded, construction
costs increased sizably due to more costly labor, materials, local fees, and
building codes. With a limited supply of affordable land and higher costs to
Oldham Crossing (Coming Soon)
construct, justifying new housing construction became difficult, except for
those areas with the highest median housing prices.

In the Baltimore area, Anne Arundel and Howard counties have seen the
strongest housing construction recovery as they enjoy strong job growth,
access to transportation, and higher median housing prices. Baltimore City has
also recovered nicely due to increased apartment construction in the downtown
market. On the other hand, Carroll, Harford, and Baltimore counties have not
experienced a strong rebound in housing construction due to lower housing
values, weaker job growth, and less available land for development.

Going forward, expect new housing construction to remain strongest in areas


near job growth centers and convenient transportation routes such as Anne
Arundel and Howard counties. Median housing prices should also continue to
increase as new housing construction will continue to struggle to keep up with
demand due to a lack of developable land and higher construction costs.
The Preserve at Windlass Run

Statewide Housing Prices vs. New Units

$350,000 35,000

30,000
$300,000
25,000
$250,000 20,000

$200,000 15,000

10,000
$150,000
5,000

$100,000 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Median Housing Price New Housing Units


Source: Maryland Stat Data Center

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 8
Baltimore Office Market SECOND QUARTER | 2017

THE NUMBERS
DIRECT VACANCY ABSORPTION ASKING RENTAL RATES*
SUBMARKET 2017 Q2 2017 Q1 2016 Q2 Current YTD 2017 Q2 2017 Q1 2016 Q2
Baltimore City East 7.1% -1.6% -2.7% 44,247 2,463 $26.74 +$0.91 +$4.16
Baltimore City Midtown 10.1% +0.9% +1.2% -13,722 -27,235 $21.73 +$1.19 +$1.68
Baltimore City North 10.4% +0.7% -1.1% -17,216 15,270 $26.86 +$0.66 +$0.30
Baltimore City South 6.9% +4.8% +1.4% 5,000 9,675 $22.75 -$0.45 -$0.03
Baltimore City West 26.8% -0.6% -5.9% 14,419 24,740 $19.50 -$4.25 +$3.17
Baltimore City 12.8% +0.3% -1.2% 32,728 24,913 $22.35 -$1.88 +$2.11
City Center A 28.5% -1.6% -0.0% 44,249 -625 $23.48 +$0.19 -$0.05
City Center A+ 6.4% +0.4% +2.0% -21,370 894 $30.21 -$0.20 +$2.03
City Center B 20.3% -1.5% +2.0% 39,450 39,189 $19.08 +$0.70 +$0.91
City Center B+ 11.9% -7.9% -0.4% 216,538 235,609 $23.19 +$0.32 +$1.36
City Center 14.7% -2.0% +0.9% 278,867 275,067 $23.32 +$0.24 +$0.97
Baltimore + CBD 13.9% -1.1% +0.0% 311,595 299,980 $22.97 -$0.51 +$1.19
Baltimore County East 13.6% -0.6% +1.9% 13,060 -32,147 $21.46 -$0.31 +$0.00
Baltimore County West 14.8% +1.0% -1.2% -34,806 -43,128 $19.90 -$0.54 -$1.04
Harford County 23.5% +2.3% -0.1% 9,164 23,639 $22.55 -$0.19 -$0.77
I-83 Corridor 9.1% -0.1% +0.1% -352 -366 $20.94 +$0.01 -$0.32
Reisterstown Rd Corridor 18.7% +1.1% +0.4% 6,033 45,127 $21.74 +$0.00 +$0.56
Towson 15.6% +0.4% -0.8% 6,188 51,521 $20.73 -$0.66 +$0.06
Northern Metro 15.2% +0.6% -0.0% -713 44,646 $21.33 -$0.25 -$0.19
Annapolis 14.5% +0.6% -2.4% -24,707 -17,272 $29.31 +$1.47 +$2.91
BWI 16.2% +1.0% +1.8% -33,595 10,778 $26.27 +$1.00 +$1.78
Columbia 8.9% +0.1% +0.6% -18,193 8,856 $25.34 +$0.03 -$0.26
Route 2 Corridor 13.2% +0.1% -0.2% 1,444 6,468 $22.96 +$0.06 +$1.16
Southern Metro 12.3% +0.5% +0.5% -75,051 8,830 $26.16 +$0.60 +$1.09
Totals 13.8% +0.1% +0.2% 235,831 353,456 $23.37 -$0.05 +$0.66

*Rental rates are weighted average.

13.8%
Vacancy Rate 20.00%
353,456
YTD
Vacancy
Absorption
Rate $23.37
Avg. Rental Rate

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 9
Baltimore Office Market SECOND QUARTER | 2017

DOWNTOWN
Market Snapshots Many welcomed sights occurred in Downtown Baltimore in the 2nd
Quarter of 2017. The city is seeing new and continuing construction
activity at 414 Light and One Light in a market that is not accustomed
to seeing new product or building cranes. Both of these mixed-use
projects have an estimated completion time of late 2018.
Just south of Downtown, McHenry Row is seeing increased office
demand as their planned office space for 2018 reportedly has
significant activity. Stadium Square has also officially opened and
Janney Montgomery Scott is the newest tenant at 145 W. Ostend.
Musical chairs continues in Downtown with several large tenants
shifting office spaces within blocks, to buildings where they are able
to build-out fresh spaces and create square footage efficiencies.
McGuireWoods is moving from 7 Saint Paul to 500 E. Pratt Street,
PwC is expanding at 100 E. Pratt to include the former Tydings and
Rosenberg space, and Tydings and Rosenberg is taking space at 1 E.
Pratt. In a big back-fill of the Exelon space, RK&K moved in to some
of their space at the Candler Building, absorbing 116,000 sf of the
market’s Class B+ vacancy.
Commitment of tenants such as those above has made the market
lucrative for investors looking for cash flowing investment
opportunities and bargains as well. Several sales occurred downtown,
including 25 S. Charles, One North Charles, 101 N. Charles, and
Brown’s Wharf in Fells Point. Other buildings are being marketed
including 120 E. Baltimore Street and 100 S. Charles – Tower ll.
Finally of note, there is a trend toward the conversion of vacant space
Submarket Breakdown to co-working spaces. Brewers Hill Hub at 3700 O’Donnell Street is
open and has several new tenants, while other co-working spaces
such as Johns Hopkins’ FastForward Innovation Hub, Power Plant
Live! and City Garage have opened recently.

Available SF Vacant SF Rental Rate


0.35 $25.0
Millions

0.7 $25.0
0.3
Million Square Feet

0.6 $24.0
$20.0
0.5 $23.0
0.25
0.4 $22.0

0.2 0.3 $21.0 $15.0


0.2 $20.0
0.15 0.1 $19.0
$10.0
0 $18.0
0.1 2011 2012 2013 2014 2015 2016 2017
$5.0
0.05
www.mackenziecommercial.com 0 $0.0
2011 is made as2012
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation to the accuracy2013 2014
thereof and all such information is2015
submitted subject2016 2017
to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017.10
Baltimore Office Market SECOND QUARTER | 2017

NORTHERN METRO SOUTHERN METRO


Baltimore’s Northern Metro has remained stable for the past few The Southern Metro as a whole remains stable in terms of vacancy
years with slight fluctuations but no distinct trends in vacancy and tenant retention. The delivery of several new projects over the past
or absorption. Baltimore County East is continuing to grow with year has resulted in an increase in market size, and available space has
vacancy slightly decreasing since last quarter. Many local, regional, increased, but, interestingly, rental rates have increased considerably
and national users are actively looking for space, and we expect the due to higher asking rents in the BWI submarket. Asking rents are
3rd and 4th Quarters to see some larger deals. Landlords are being particularly high in National Business Park due to its Class A product
forced to provide better concessions as new tenants move to second and prime location adjacent to Ft. Meade, home to the NSA and US
generation building spaces and require new build-outs; TI has risen to Cyber Command, which makes it ideal for government contractors. In
around $50/sf in some cases. the rest of the submarket, predominantly the older product adjacent
to BWI, landlords continue to offer substantial concessions to attract
Reisterstown Road Corridor is still struggling with its transactions
tenants as vacancy levels remain stubbornly high.
and saw the least amount of movement this quarter with vacancy
increasing. Location and the layout of area developments make Conversely, Route 2 Corridor has tightened up over the past few
it a difficult market to retain tenants. Some larger tenants such as quarters. While there hasn’t been significant absorption this year to
Medifast are looking to move downtown into the new developments date, overall occupancy is strengthening and rents remain consistent.
in Harbor East, while others, such as Rosen, Sapperstein, and Vacancy is at its lowest point in at least five years, and rents have
Freidlander have moved to the Towson area and left behind vacancies followed suit, rising to an average of $22.96/sf (Class A asking average
in the Reisterstown submarket. is $23.27/sf).
On the other hand, the I-83 Corridor has continued to be one of the Columbia continues to be one of the strongest suburban submarkets
healthiest office markets in the Baltimore Metro area. Tenants are in the Baltimore Metro area. Even with several new construction
paying higher rents as they shift from Class B to A properties. The projects and deliveries, Columbia has maintained its single digit
Class A buildings and surrounding amenities help tenants in the area vacancy, which hovers just under 9%, and currently has the lowest
to recruit and retain the younger generation of employees. McCormick availability in the Southern Metro (14.4%). It is a bit of a landlord’s
is in the process of building their new headquarters, and has listed market right now, as rental rates are the highest they have been in over
their current headquarter buildings (18 Loveton and 221 Schilling) on five years. However, most of the growing opportunities are centered in
the market for sale. downtown Columbia and Maple Lawn, leaving the rest of county at a
disadvantage. In light of this disparity, the county and other interested
The Towson market continues to lag behind other submarkets in the
parties are actively pursuing options to improve Columbia Gateway so
I-83 North Corridor. While the beltway buildings are leasing up at
it can better compete with the properties in downtown Columbia.
rates favorable to landlords, the Towson Core struggles to attract new
tenants from other areas. That trend could change in the next year with The Annapolis market remains consistent so far in 2017. While the
Greenberg Gibbons announcing a new partnership with Caves Valley available space in the market decreased in the past quarter, vacancy
Partners to formally develop the Towson Row project. New housing rose slightly. This increase in vacancy has caused landlords to be
and retail normally pave the way for office users looking to live, work, more aggressive as they offer more market concessions for longer
and play without driving to work. On a good note, 1 W. Pennsylvania term deals including turn-key spaces and rent abatement. We expect
Avenue has landed Black & Decker and Rosen, Sapperstein, and the market to see some strong activity as we move through the year as
Freidlander to the building. We remain cautiously optimistic that the tenants of all sizes are shopping the market. For example, Children’s
future of the Towson Core is bright with the updated development National Medical Center will take 10,000 sf at 1730 West Street in the
plans for Towson Row. 4th Quarter. There has been a lot of activity from investors, specifically
in the West Annapolis area and we have seen a good amount of 1031
exchanges and off-market deals completed this year.
Available SF Vacant SF Rental Rate
0.35 $25.0
1 $22.0 1.4 $27.0
0.3
Million Square Feet

Million Square Feet

0.8 $21.5 $20.0 1.2 $26.0


0.25 1 $25.0
0.6 $21.0 0.8 $24.0
0.2 $15.0 0.6 $23.0
0.4 $20.5
0.4 $22.0
0.15 0.2 $20.0
$10.0 0.2 $21.0
0 $19.5 0 $20.0
0.1 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017
$5.0
0.05

0 $0.0
www.mackenziecommercial.com
2011 2012 2013 2014 2015 2016 2017
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 11
Baltimore Office Market SECOND QUARTER | 2017

DIRECT VACANCY
Direct Vacancy % by Region
Vacancy Begins to Level

Baltimore City Northern Metro Southern Metro Direct vacancy increased slightly over the last year. While market
20% vacancy has been on a steady decline since 2011, it seems to
19% have leveled out between 13.6% and 13.8%. This is still a record
18% low for the market as a whole, but there hasn’t been any further
17% decline since 3rd Quarter 2016. The submarkets with the lowest
vacancy rates are in City Center A+ (6.4%) and Baltimore City
Direct Vacancy Percent

16%

15%
South (6.9%). City Center B+ saw a drastic increase in occupancy
as RK&K moved into their space at 111 Market Place. Among
14%
other deals, this brought the vacancy down almost 8% to 11.9%,
13%
which is the lowest it has been since mid-2015. The I-83 Corridor
12%
and Columbia also have single-digit vacancy rates, and continue
11% to lead their respective metro areas in overall market occupancy.
10%
2012 2013 2014 2015 2016 2017

ABSORPTION Current Absorption by Submarket Absorption Led by City Center

Net Direct Absorption YTD Absorption Absorption was quite high this quarter primarily due to the
300,000
previously mentioned move-in at the Candler Building. This is
250,000
the most absorption in the Baltimore Metro area since mid-2016.
200,000
The other submarkets saw less movement, as tenants continue
150,000
Absorption SF

to shift around. Year-to-date next to City Center, Towson has


100,000
experienced the most positive growth, totalling 51,521 sf. The
50,000 Southern Metro saw the most negative absorption, totalling
0 -75,051 sf. The greatest losses were centered in BWI (-33,595
-50,000 sf) and Annapolis (-24,707 sf). It is difficult to attribute this loss
-100,000 to one or two properties, but increases in vacancy can be seen at
180 Admiral Cochrane and 275 West Street in Annapolis, and 900
International Drive and 306 Sentinel Drive in the BWI submarket.

ASKING RENTAL RATES


Average Rental Rate
Asking Rates Continue to Soar

Average Rental Rate Average Rental rates for the Baltimore Metro remain high at an average
$24.00 of $23.37/sf. While the asking rents dropped only $0.05 this
quarter, rates are still the highest they have been for many years.
$23.50
Baltimore City saw the greatest decrease in rates, going from
$23.00
$24.23/sf to $22.35/sf this quarter due to low asking rents in
Baltimore City West in particular. Conversely, every submarket
Asking Rental Rate/SF

$22.50 in the Southern Metro is increasing their asking rates this quarter
- most notably in Annapolis and BWI, where rates went up by
$22.00
$1.00/sf and $1.47/sf, respectively. The best deals can be found
$21.50 in City Center Class B at $19.08/sf, Baltimore City West at $19.50/
sf, and Baltimore County West at $19.90/sf. The most expensive
$21.00
buildings to lease continue to be located in City Center Class A +
$20.50
at $30.21/sf.
2011 2012 2013 2014 2015 2016 2017

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 12
Baltimore Office Market SECOND QUARTER | 2017

NEWS Highlights
• Brewers Hill Hub, the new co-working space at 3700 O’Donnell • McCormick has announced that its two headquarter offices in
Street, is now 30% leased. The space has 18 desks, 50 cubicles, Hunt Valley are for sale: 221 Schilling Circle (128,471 sf) and 18
18 single and double offices, and six suites Loveton Circle (145,271 sf). 18 Loveton Circle also includes 54
• Rosen, Sapperstein & Friedlander LLC recently signed a new acres of space.
lease and is moving from 300 Red Brook Boulevard to Towson • Kaiser Permanente recently opened a new medical center in Glen
Commons in December. The space will be roughly 14,000 sf. Burnie. The North Arundel Medical Center is approximately 25,735
• Clock Tower Place in Annapolis recently sold to the Abrams sf and will be located at 7670 Quarterfield Road.
Development Group for $10.5 million. The property has equal retail • PwC is expanding at 100 E. Pratt Street. They will take over the
and office tenants, and was 98% leased at the time of sale. space from Tydings and Rosenberg LLP, adding an additional
• As of the end of June, 7134 Columbia Gateway Drive is 100% 36,000 sf + to their current space.
leased. The space is roughly 21,000 sf. • Eagle Eye Care is moving into 3,053 sf of medical space at 5500
• Atapco Properties recently purchased the Baltimore Sun Knoll North in Columbia.
headquarters on N. Calvert Street, which includes 435,000 sf of • Johns Hopkins Applied Physics Lab purchased the office complex
office space. it was already leasing at 7701-7707 Montpelier Road in Laurel. The
• 25 S. Charles Street sold for $244.5 million to Grander Capital sale price was $22.4 million for around 157,000 sf of office space.
Partners. The building has 359,000 sf of office space and was fully • 8501 and 8600 LaSalle Road at Maryland Executive Park in
leased at the time of sale. Towson sold for $32.1 million in mid-June. The two buildings were
• Israeli defense firm ELTA North America moved into 21,500 sf at purchased by Mid Atlantic Healthcare Acquisitions LLC.
8955 Henkels Lane. • 100 Ridgely Avenue in Annapolis sold for $625,000 (around $250/
• McGuireWoods LLP signed a 10-year lease at 500 E. Pratt Street sf). The building is 2,100 sf, and was sold to MRE Fund I, LLC.
for 21,000 sf, hoping to complete the relocation from 7 Saint Paul
Street by November.

Notable Transactions
Lease

Location Submarket Tenant Amount Leased SF

120 Sparks Valley Road I-83 Corridor Davenport Preschool 15,200 sf

180-188 W Ostend Street Baltimore City South HBK Engineering, LLC 5,000 sf

6711 Columbia Gateway Drive Columbia Capital Bank 4,688 sf

175 Admiral Cochrane Drive Annapolis Merchant Lynx 4,590 sf

Sale
Location Submarket Price PSF Building Size
25 S Charles Street City Center $24,500,000 $68.20/sf 359,254 sf

1615-1637 Thames Street City Center $21,000,000 $201.53/sf 104,204 sf

1410 Forest Drive Annapolis $10,300,000 $219.91/sf 46,838 sf

10909 McCormick Road I-83 Corridor $8,300,000 $130.06/sf 63,816 sf

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 13
Baltimore Retail Market SECOND QUARTER | 2017

BEER ME! THE CRAFT BEER REVOLUTION AND ITS IMPACT ON RETAIL REAL ESTATE
Mike Ruocco, Senior Real Estate Advisor

In an era when articles are published daily detailing the demise of retail as we know it, several sectors of the retail world are still thriving.
Make no mistake, with the growth of online based shopping, Amazon’s recent acquisition of Whole Foods, big box tenants (such as
RadioShack, HHGregg, and Payless Shoe Source) shuttering left and right, and malls, the once behemoths of the retail world reeling, an
adjustment is certainly looming. I believe we are already seeing the adjustment, perhaps we have just not yet recognized it fully. Bisnow
published an article June 27th, 2017 detailing six facts that dispel the myth that the retail sector is struggling. The facts included:

1. National retail rents reached a nine-year high in Q1


2. Major retail brands are still expanding
3. U.S. retailers are leading the pack in international expansion
4. Brick-and-mortar is taking over e-commerce, not vice versa
5. Warren Buffet just bet big on the sector
6. Fundamentals reflect continued strength in the sector

We’d like to add a seventh, the craft beer revolution.

While the retail real estate landscape as a whole evolves, one thing is for sure, the craft beer business is booming and Maryland has shown
that there is room for the little guy. Examples of this have included Guinness announcing plans for its $50 million brewery in Southwest
Baltimore; Union Craft Brewing purchasing the 138,000 sf former Sears parts warehouse in Hampden with plans to expand their on-going
brewing activities in addition to opening the Union Collective, a local business hub that will support their expansion plans and include the
presence of Baltimore Whiskey Co., The Charmery, and Earth Treks; and, countless up-and-coming breweries including the likes of Full Tilt
Brewing, Monument City, and Heavy Seas succeeding. Brew houses and craft beer concepts have begun filling vacant former Macaroni
Grill, Famous Dave’s and Joe’s Crab locations, as well as driving customers to urban redevelopments like the converted fire station, Brew
House No. 16 in the Mt. Vernon neighborhood of Baltimore.

For craft brewers, the more options, the better. As with many of us, some days you feel like eating pizza and others perhaps sushi, and
that’s ok! In fact, Maryland Comptroller Peter Franchot agrees. Following the announcement of Diageo’s plans to open the Guinness
Brewery and Taproom in Relay, Maryland, lawmakers passed the highly criticized House Bill HB1283. Franchot went on to start the Reform
on Tap task force which aims to bring together brewers, legislators, wholesalers, and retailers thus reinforcing how important it is for
Maryland to assist and not resist an industry of growth in a time of retail brick-and-mortar doom and gloom.
(Continued on page 15)

RETAIL SNAPSHOT | 2nd QUARTER 2017

3.9%
Vacancy Rate -197,841
20.00%
YTD
Vacancy
Absorption
Rate $19.24
Avg. Rental Rate

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 14
Baltimore Retail Market SECOND QUARTER | 2017

THE NUMBERS
Market Direct Direct Absorption Available Average
Submarket Bldgs
Size SF Vacant SF Vacancy SF % Asking Rent
Current YTD
Annapolis 811 13,537,076 293,278 2.2% 81,233 122,518 3.4% $23.81
Baltimore City 3,415 26,725,793 977,714 3.7% -20,125 -4,632 5.6% $15.92
Baltimore County East 697 9,599,106 668,163 7.0% -43,540 29,051 9.4% $14.41
Baltimore South 635 10,491,159 808,623 7.7% -16,241 -90,115 8.3% $17.31
Baltimore West 605 10,575,479 234,742 2.2% 31,178 67,750 5.9% $18.42
Carroll County 514 8,106,884 383,882 4.7% 7,410 36,009 5.7% $15.24
Columbia 420 9,085,033 263,790 2.9% 17,010 -1,830 4.1% $32.90
Ft. Meade 364 8,032,024 232,117 2.9% 1,739 62,535 4.2% $21.82
Harford County 850 11,918,861 500,013 4.2% -3,476 15,676 5.9% $22.89
Reisterstown Road Corridor 362 5,985,790 336,031 5.6% -7,701 -452,799 8.0% $20.80
White Marsh / Perry Hall 356 6,285,205 238,176 3.8% -24,578 -20,882 5.0% $17.11
York Road Corridor 690 12,943,562 274,606 2.1% 3,628 38,878 5.0% $23.54
Market Totals 9,719 133,285,972 5,211,135 3.9% 26,537 -197,841 5.7% $19.24

(Continued from page 14)

As quoted in a March 28th 2017 Baltimore Business Journal


Article, Franchot went on to say, “These breweries are creating
jobs, creating wages, and creating tax revenue to help the city
of Baltimore. What Baltimore needs more than anything, more
than money, is jobs and wages for their citizens.” Therefore, to
see a legislative bill threaten the brewery industry in Maryland is
“inexplicable” Franchot commented. House Bill 1283, which was
passed by the House of Delegates in March, raises the barrel cap
for tap rooms; however, it cuts back operating hours and the
ability for the breweries to utilize beer made off site.

Craft Breweries are a microcosm for success. When a person


has a passion, they pursue that passion until it becomes their
job. The job then drives revenue for the economy while offering
an amenity to its residents. As we say here at MacKenzie, “Local
Matters,” and I look forward to seeing you at the next local
brewery opening in your neighborhood.

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 15
Baltimore RETAIL Market SECOND QUARTER | 2017

DIRECT VACANCY
Average Direct Vacancy %
Vacancy Continues to Decline

7% The Baltimore Metro retail market had an average direct


vacancy rate of 3.9% this quarter, showing that last quarter’s
6% higher rate of 4.4% was a minor fluke in the steady decrease
of vacancy for the past five years. Buildings with the lowest
5%
Direct Vacancy Percent

vacancy rates are located along the York Road Corridor


and Annapolis, at 2.1% and 2.2% respectively. These have
4%
remained the lowest submarkets on average for the past
3% couple years. Reisterstown Road Corridor had an increase
in available space with the opening of Foundry Row, but
2% the influx of tenants has pushed the vacancy rate from an
abnormally high 15.7% back down to its current quarter rate
1% of 5.6%. Baltimore South retains the highest vacancy rate of
7.7%. This submarket’s vacancy has steadily increased since
0%
late 2014 at 5.8%.
2011 2012 2013 2014 2015 2016 2017

ABSORPTION Net Direct Absorption


Absorption Levels Out in the 2nd Quarter

1,000,000 While this quarter’s absorption numbers were positive


at 26,537 sf, the year-to-date absorption remains low at
800,000 -197,841 sf for the Baltimore Metro area. In the 2nd Quarter,
the most tenant move-ins took place in Annapolis, which had
600,000 81,233 sf of positive absorption (122,518 sf in 2017 thus far).
Comparatively, Baltimore County East lost the most tenants
Net Absorption SF

400,000
this quarter, resulting in a negative absorption of -43,540 sf.
The main culprits of the loss year-to-date are Reisterstown
200,000
Road Corridor, which saw a drop in absorption in the 1st
0 Quarter, and Baltimore South, which has a net 2017 loss of
-90,115 sf. Although Reisterstown Road had a challenging
-200,000 1st Quarter, it has bounced back with an average occupancy
rate of 93.4% this quarter.
-400,000
2011 2012 2013 2014 2015 2016 2017

Rental Rates Climb in 2017


ASKING RENTAL RATES
Average Asking Rental Rates
Asking NNN rental rates averaged around $19.24/sf for the
$19.5
Baltimore Metro area as a whole. In the past quarter, retail market
rental rates increased by approximately $0.38/sf with an annual
$19.0 increase of $0.49/sf. The highest asking rents can be found in
Columbia and Annapolis, which average an asking NNN rate of
$18.5 $32.90/sf and $23.81/sf, respectively. The best deals can be
found in Baltimore County East and Carroll County, which average
Asking Rent/SF

$18.0 $14.41/sf and $15.24/sf respectively. The biggest change can be


seen in the Columbia submarket. In the past year, asking rates
$17.5 have gone up $5.59/sf. Similarly, Harford County asking rates
have gone from $18.39/sf to $22.89/sf in the past year, rising
$17.0 $4.50/sf on average. While rates have fluctuated over the past
several years, the current asking NNN rates are the highest they
$16.5 have been in many years.
2011 2012 2013 2014 2015 2016 2017

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 16
Baltimore Retail Market SECOND QUARTER | 2017

NEWS Highlights
• Duck Donuts opened at 5272 Campbell Boulevard in White Marsh • Ruth Shaw, a clothing retailer at the Village of Cross Keys, is
at the end of June. They took 1,300 sf in the Nottingham Square relocating to 3,000 sf at the Towson mall early Fall 2017.
Shopping Center.
• Cilantro, a Mediterranean restaurant located in Owings Mills, opened
• Baltimore in a Box is moving from Highlandtown to 857 W. 36th a second location at 30 Light Street that is 1,400 sf with 45 seats.
Street at The Avenue in Hampden.
• The Walmart at 8730 Liberty Road in Randallstown sold for $28.5
• Mouth Party Caramels signed a lease for 8,000 sf at 1946 million in May. The building is 160,908 sf. Walmart will continue to
Greenspring Drive for office and manufacturing space with a small lease the space.
retail component.
• HomeGoods recently signed a deal at Foundry Row. They plan to
• Several new retail leases were signed at the Mall in Columbia be open by the end of 2017. They will move into the old Sports
for Shake Shake, Uncle Julio’s Rio Grande Café, Main Event Authority space.
Entertainment, Barnes & Noble, Z Gallerie home furnishings, and
The Walrus Oyster & Ale House. • Under Armour, Kate Spade, and Polo Ralph Lauren have all moved
to Arundel Mills Mall.
• Mutiny Pirate Bar & Island Grille is moving to 33 Magothy Beach
Road in Pasadena, and opening a new location at 7190 Troy Hill • Flynn O’Hara Uniforms is moving from Loch Raven Plaza in Towson
Drive in Elkridge for 4,200 sf with an outdoor area. to North Plaza Shopping Center in Parkville. They recently signed a
lease for 5,338 sf at 8898 Waltham Woods Road.
• Sears has announced they are closing stores at 126 Shawan Road
in Hunt Valley and 17318 Valley Mall Road in Hagerstown. • Payless has closed four Maryland locations as part of their newest
bankruptcy plan. Locations include Mountain Road in Glen Burnie,
• Grabbagreen, an Arizona-based food/juice restaurant chain, will Forest Park Village in Forestville, Federal Plaza in Rockville, and
open a 2,100 sf space in Hunt Valley Towne Centre this summer, Eastover Shopping Center in Oxon Hill.
along with Echo Frezco, a Mexican restaurant.

Notable Transactions
Lease

Location Submarket Tenant Amount Leased SF

9220 Baltimore National Pike Columbia Dick’s Sporting Goods 42,959 sf

8825 Centre Park Drive Columbia IHOP 4,977 sf

914 Bay Ridge Road Annapolis Wellspring Therapy 1,820 sf

6080 Falls Road Towson Serenity Nails 1,329 sf

Sale
Location Submarket Price PSF Building Size
8730 Liberty Road Reisterstown Road Corridor $28,500,000 $177.12/sf 160,908 sf

9612 Reisterstown Road Reisterstown Road Corridor $2,037,294 $400.41/sf 5,088 sf

7010 Ritchie Highway 2 Route 2 Corridor $1,920,000 $469.32/sf 4,091 sf

2029 West Street Annapolis $1,850,000 $349.06/sf 5,300 sf

(1) Portfolio Sales; (2) Investment Sales

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 17
Baltimore Industrial Market SECOND QUARTER | 2017

HEALTHY MARKET-WIDE OCCUPANCY LEVELS


Dan Hudak, SVP/Principal
At quick glance...
After the Baltimore Metropolitan Industrial Market saw a
lackluster start to 2017 due to some uncertainty that spilled
FLEX WAREHOUSE
over from the Presidential election, the market was very active in
both the flex and warehouse categories in the 2nd Quarter. This
quarter, the flex market absorbed just over 500,000 sf, while the
warehouse market saw just over two million square feet erased
from the market. Both quarterly totals were their highest since
Q2 2014. This absorption pushed vacancy levels to near record
7.7%
Vacancy Rate
6.0%
Vacancy Rate
lows with flex vacancy at 7.7% and warehouse vacancy at 6%.

The overall market stands at 6.4%, down 1.40% from this time
last year. Counterintuitive to the reduced vacancy levels, average
rental rates saw modest increases in flex at $11.36/sf, up $.08/
sf from the 1st Quarter, where warehouse product average rents
503,829
Net absorption
2.0 M
Net absorption
were flat from the previous quarter at $5.10/sf.

Few buildings traded hands in during the 2nd Quarter, as the

$11.36 $5.10
dearth of available product continues. However, a few notable
sales include: Gramercy snatching up the 449,000 sf warehouse
at 9325 Snowden River Parkway (a.k.a. 9325 Berger Road) for
$29.2 million or $65/sf; Cabot Properties’ purchase of 6940 avg. rental rate avg. rental rate
San Tomas Road in Rt. 100 Business Park in Elkridge, a 144,000
sf building fully leased by Mircroflex for $10 million or $69.44/
sf ; Industrial Property Trust bought the 98,653 sf building at
10100 Willowdale Road for $13.1 million, or $132.79/sf. The
Covington Group took on some lease risk while planning multiple
renovations when it purchased the 300,000 sf former Lineage
Logistics warehouse at 7330 Carbide Road.

LOOKING AHEAD...
Dan Hudak, SVP/Principal

Expect to see the current steady demand from


warehouse users carry into the next several quarters.
Activity has been especially brisk from users in the
100k-200k square foot range seeking space near the
Port of Baltimore north to Baltimore County. By the
end of the year expect, few blocks of space in this size
range to remain available. This will undoubtedly push
rental rates higher across the market, unlike those
seen during the 2nd Quarter.
* Industrial market statistics are in comparison to this time last quarter

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 18
Baltimore Industrial Market SECOND QUARTER | 2017

THE NUMBERS
Market Direct Direct Absorption Available Average
Submarket Bldgs
Size SF Vacant SF Vacancy SF % Asking Rent
Current YTD
FLEX INDUSTRIAL MARKET

Annapolis/Route 2 Corridor 175 5,166,851 298,285 5.8% 122,640 131,609 10.52% $12.22
Arbutus 59 2,225,008 71,915 3.2% 148,580 157,544 8.75% $10.96
Baltimore City 129 4,169,588 287,754 6.9% 77,500 80,736 17.01% $8.80
Baltimore County East 116 3,844,189 282,882 7.4% 30,985 33,698 9.66% $10.91
BW Corridor 334 15,129,659 1,443,014 9.5% 79,444 156,334 15.52% $12.93
Carroll County 55 1,209,653 150,339 12.4% -15,869 -7,973 17.44% $9.33
Harford/Cecil 136 3,042,384 208,968 6.9% 21,777 30,134 8.90% $13.00
I-83 Corridor 106 4,905,600 137,836 2.8% 55,039 35,883 5.49% $11.35
Reisterstown Rd Corridor 86 3,064,759 397,662 13.0% 10,446 -21,380 19.50% $9.51
Woodlawn/Catonsville 53 2,520,949 218,669 8.7% -26,713 -20,309 14.17% $8.63
Totals 1,249 45,278,640 3,497,324 7.7% 503,829 576,276 12.97% $11.36

Annapolis/Route 2 Corridor 198 8,991,868 364,586 4.1% 42,748 76,628 6.28% $5.40
WAREHOUSE INDUSTRIAL MARKET

Arbutus 103 7,562,740 742,698 9.8% 81,327 145,429 20.03% $3.94


Baltimore City 1,098 40,621,628 1,855,114 4.6% 220,357 617,512 8.63% $4.81
Baltimore County East 333 20,538,852 1,581,090 7.7% 1,348,095 1,544,978 12.98% $5.00
BW Corridor 561 43,869,177 3,758,459 8.6% 216,775 411,957 10.39% $5.63
Carroll County 155 7,066,172 375,419 5.3% 89,200 48,536 6.80% $5.56
Harford/Cecil 336 32,864,505 1,364,501 4.2% 85,215 46,262 5.76% $4.67
I-83 Corridor 83 4,382,081 98,954 2.3% 6,000 9,600 4.25% $8.85
Reisterstown Rd Corridor 54 1,505,998 34,700 2.3% -13,468 -6,810 5.82% $8.19
Woodlawn/Catonsville 48 1,287,509 12,000 0.9% 0 0 1.43% $7.54
Totals 2,969 168,690,530 10,187,521 6.0% 2,076,249 2,894,092 9.17% $5.10

Industrial Market Totals 4,218 213,969,170 13,684,845 6.4% 2,580,078 3,470,368 9.98% $6.82

Highlights
• CLW, LLC purchased single-story industrial building 15 Loveton Bergin Development for $2.3 million. The flex property is roughly
Circle from STAG III Sparks LLC for $1.5 million. The building is 38,000 sf.
34,800 sf and was renovated in 1994. • Construction was completed at CGC Holdings’ location at 7540
• 1100 N. Macon Street was recently sold to American Asphalt Paving Assateague Drive. The building is 160,000 sf and CGC Holdings has
Company. The parcel is 10-acres with 13,000 sf of building space. officially moved in.
• Lineage Logistics sold a vacant 300,000 sf warehouse at 7330 • Vitreon America, Inc. announced plans to move their R&D facility
Carbide Road (and additional land space of roughly 38 acres) to The and headquarters to Baltimore City on Wicomico Street. They are
Covington Group. hoping to take approximately 200,000 sf.
• Industrial Property Trust recently bought 10100 Willowdale Road for • SSZ Guilford Road Self Storage, LLC purchased 10305 Guilford
$13.1 million. The warehouse is 98,653 sf Road in Jessup. The building is approximately 55,000 sf and sold
• 1303 Carroll Street in Baltimore was recently sold to Arocon Homes, for $4.6 million. The project is expected to reopen in late 2017.
LLC. The warehouse is 30,000 sf. • Sheppard Pratt Hospital recently expanded with the purchase of a
• Cabot Properties purchased 6940 San Tomas Road, in the Route 100 81,795 sf warehouse with 32’ ceilings at 6500 Kane Way. The sale
Industrial Park in Elkridge for $10 million. The 144,000 sf space is price was $12.75 million. While this sale price ($156/sf) was much
currently leased by Microflex. higher than the market average, the property adjoins to 40 acres of
space purchased in 2010.
• 1334 Ashton Road sold to Kenwood Management and Feldman

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 19
Baltimore Industrial Market SECOND QUARTER | 2017

Net Direct Absorption


Vacancy Continues to Fall
DIRECT VACANCY Flex Warehouse
13%
For both warehouse and flex spaces, vacancy has dropped
1,800,000
steadily since 2nd Quarter 2015, going from 9.1% to the current
12% 6.8% for total vacancy, and 9.0% to 6.4% for direct vacancy. It
1,300,000 is the lowest vacancy the market has seen in many years. For
11% the warehouse market, I-83 Corridor and Woodlawn submarkets
lead the pack with 2.3% and 0.9% vacancy, respectively. Arbutus
Net Absorption SF
Direct Vacancy Percent

10% 800,000
and the BW Corridor have the highest vacancy of 9.8% and 8.6%
9% respectively. The most growth can be seen in the Baltimore
300,000
County East market, which saw a decrease in vacancy from 13%
8% to 7.7%. In the flex market, the lowest vacancies can be found
-200,000 in Arbutus and the I-83 Corridor, which had 3.2% and 2.8%
7%
respectively. The highest vacancies are located in Carroll County
6% -700,000 and along the Reisterstown Road Corridor. Arbutus saw the most
2011 2012 2013 2014 2015 2016 2017 change this quarter, dropping from 9.9% to 3.2%. Several large
-1,200,000 Net Direct Absorption direct leases attributed to this fall in vacancy.
2011 2012 2013 2014 2015 2016 2017
YTD ABSORPTION 1,800,000
Flex Warehouse Considerable Tenant Movement in the 2nd Quarter
1,600,000 1,800,000 While 1st Quarter 2017 saw just under 900,000 sf of absorption,
1,400,000
the 2nd Quarter seemed to be an active one for both landlords
1,200,000 1,300,000 and tenants, resulting in a YTD absorption of 3.4 million sf. The
1,000,000 absorption can be attributed to Baltimore County East, Baltimore
City, and the BW Corridor, which all saw considerable absorptions
Net Absorption SF

800,000 800,000
Net Absorption SF

this quarter. Large deals took place, for example, at 7030


600,000
Quad Avenue and 10521 Industrial Park Road. The flex market
300,000
400,000
had large absorptions in the Annapolis/Route 2 and Arbutus
200,000 submarkets. Year to date, Arbutus has the highest absorption in
0 -200,000 the flex market. The only warehouse submarket with a net loss
-200,000
was Reisterstown Road, causing vacancy to go up 0.9% to 2.3%.
-700,000 Woodlawn saw very little movement this quarter, but remains the
lowest vacancy for the Baltimore Metro warehouse market.
-1,200,000
2011
Net Direct
2012
Absorption
2013 2014 2015 2016 2017
Rental Rates Stable But Climbing
ASKING RENTAL RATES Flex Warehouse

1,800,000 Rental rates for the 2nd Quarter remained consistent at an average
$12
asking rate of $6.82/sf, only increasing by $0.01/sf over the past
$11 quarter and by $0.12/sf since this time last year. The flex market has
1,300,000 fluctuated slightly over the past year, but now averages $11.36/sf.
$10
The best tenant deals are located in the Woodlawn and Baltimore
Net Absorption SF

$9 800,000 City submarkets, which are asking for $8.63/sf and $8.80/sf,
respectively. The highest rents are located in Harford/Cecil county
$8
300,000 and the BW Corridor, averaging around $13.00/sf. The warehouse
Asking Rent/SF

$7 market asking rents have remained the same since last quarter,
asking $5.10/sf on average. The highest rates are located along the
$6 -200,000 I-83 Corridor and Reisterstown Road, asking $8.85/sf and $8.19/
$5 sf respectively. The largest increases from this time last year for
-700,000 Flex properties were in Arbutus (+$1.66/sf), Baltimore County
$4
East (+$1.58/sf); in the Warehouse markets, Annapolis/Route 2
$3 -1,200,000 decreased by -$1.32/sf, and I-83 Corridor decreased by -$1.16/sf.
2011 2012 2013 2014 2015 2016 2017
2011 2012 2013 2014 2015 2016 2017

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 20
Baltimore Industrial Market SECOND QUARTER | 2017

Notable Transactions
Lease

Location Submarket Tenant Amount Leased SF

6500 Kane Way BWI Sheppard Pratt Health System 81,795 sf

1409 Tangier Drive Baltimore County East Stanley Black and Decker 21,073 sf

301-335 S Kresson Street Baltimore City Louis Wood Banquet Furniture 20,000 sf

903 W Ostend Street Baltimore City Serve-Pro 20,000 sf

Sale
Location Submarket Price PSF Building Size
1000 Old Philadelphia Road 2
Harford//Cecil $36,031,000 $89.84/sf 401,072 sf

9325 Snowden River Parkway 2 Columbia $29,200,000 $61.46/sf 475,074 sf

6500 Kane Way BWI $12,750,000 $155.88/sf 81,795 sf

6940 San Tomas Road 2 BWI $10,000,000 $69.48/sf 143,924 sf

(1) Portfolio sale; (2) Investment sale

REPORT CRITERIA

OFFICE:

Buildings 15,000 sf in size and greater in the Metro areas within Anne Arundel County, Baltimore City, Baltimore County, and Howard County, buildings 20,000 sf in size and greater
within Baltimore’s City Center, buildings 10,000 sf in size and greater in the Metro areas within Harford County, and buildings 5,000 sf in size and greater within Annapolis city limits.
MacKenzie includes all class types, but does not track owner occupied buildings or buildings leased exclusively to medical tenants. The office market is separated into the following
submarkets: Annapolis, Baltimore City, BWI, Baltimore County East, Baltimore County West, City Center, Columbia, Harford County, I-83 Corridor, Reisterstown Corridor, Route 2
Corridor, and Towson.

INDUSTRIAL:

Flex buildings and some single story office buildings that are greater than 5,000 sf, single story warehouse buildings that are greater than or equal to 5,000 sf, and some multi-story
warehouse buildings in Baltimore City. MacKenzie does not track owner occupied buildings. We have classified the properties into 10 submarkets for industrial identified as the following:
Annapolis, Arbutus, Baltimore County East, Baltimore City, BW Corridor, Carroll, Harford/Cecil, I-83 Corridor, Reisterstown Road Corridor, and Woodlawn/Catonsville. Flex buildings are
limited to properties 5,000 sf and greater, while warehouse buildings are limited to single-story properties. Data does not include under construction or proposed projects.

RETAIL:

Retail buildings greater than or equal to 2,000 sf in Baltimore City and surrounding counties of Baltimore, Howard, Carroll, Harford, Cecil and Anne Arundel. The Baltimore Retail Market
resembles a “hub and spoke” configuration, with many of the submarkets following the major roads in and out of Baltimore City. The region is broken down into twelve submarkets;
Annapolis, Baltimore City, Baltimore County East, Baltimore County South, Baltimore County West, Carroll County, Columbia, Fort Meade, Harford County (including Cecil County) the
Reisterstown Road Corridor, White Marsh/Perry Hall (Baltimore County East), and the York Road Corridor.

www.mackenziecommercial.com
* All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions,
or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 21