
By Anirban Basu, Sage Policy Group
By and Large, First Quarter was a Non-Event for Local Office Market
The last twelve months have been solid ones for the Baltimore area economy. Despite the malaise that impacted the local economy in early and mid-2011, the region managed to add 21,200 jobs over a recent twelve-month period, outperforming both the state and nation in terms of the pace of job growth in the process. This performance was due at least in part to the impacts of base realignment, which is reflected in office market statistics.
During the first quarter of 2012, virtually all of the improvement in office market conditions was attributable to the southern metro region, which includes the base-realignment impacted BWI office submarket along with Columbia, Annapolis and the Route 2 Corridor. Net absorption totaled 232,717 square feet (sf) during the year's initial quarter, with direct vacancy remaining below 16 percent. Leading the way were BWI and Columbia, with 127,536 and 71,374 sf absorbed, respectively.
The balance of the Baltimore area marketplace was flat to declining. In the Northern metropolitan area, net absorption totaled less than 1,000 sf. The Towson submarket actually sustained -74,544 sf in terms of net absorption, but this was more than offset by the combined performance of the I-83 Corridor (+51,130 sf) and Baltimore County West (+35,000 sf).
Center City Baltimore remains highly resistant to improvement. Net absorption was negative for the first quarter (-88,743 sf), with Class B absorption totaling -113,508 sf. Class B vacancy with sublet is now north or 35 percent. At the same time, a recent report from the Downtown Partnership indicated a downtown apartment vacancy rate is less than 3 percent. The very strong implication is that the market is ripe for a conversion of Class B office space into apartments and several projects are now at various stages of planning.
In the balance of Baltimore City, net absorption totaled -55,242 sf. This performance has to be considered disappointing given that the economy is now in the midst of its third year of economic recovery. Direct City Center vacancy has risen from 21.2 percent a year ago to 21.8 percent more recently. Citywide, vacancy has expanded from 18.6 percent to 19.0 percent.
Suburban Baltimore should continue to progress. Though economic headwinds remain, sustainable private employment expansion can be anticipated, including in professional and business services, a major office-using employment category. However, job growth over the next twelve months may fall short of the most recent twelve-month period given the prospective absence of substantial base realignment-related impacts.

Notable Transactions
Lease
| Location | Submarket | Tenant | Amount Leased SF |
| 849 Dulaney Valley Road | Towson | GSA | 22,000 sf |
| 100 S. Charles Street | City Center | Jacob's Engineering | 20,050 sf |
| 307 W. Baltimore Street | City Center | University of Maryland - Baltimore | 11,000 sf |
Sale
| Location | Submarket | Price | PSF | Building Size SF |
| Prologis Portfolio (20 buildings) | Columbia | $80,750,000 | $117.49 | 687,373 sf |
| The Village of Cross Keys | Baltimore City North | $26,000,000 | $88.63 | 293,371 sf |
| COPT White Marsh Portfolio (5 buildings) | Baltimore County East | $19,200,000 | $117.88 | 162,873 sf |

* 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 3/2012.
| Number of Buildings | 1,216 |
| Market Size | 75,711,086 sf |
| Change Since Last | |||
| Current | qtr | YR | |
| Direct Vacancy | 16.07% | ||
| Vacancy W/ Sublet | 16.62% | ||
| Net Absorption | 117,847 sf | ||
| Avg. Asking Rate | $22.12 | ||
Above: This year started with negative absorption, which was most dramatic in the City Center submarket where a single tenant vacated a Class B building.
Vacancy & Rental Rates By RegionAbove: Baltimore’s Southern Metro Market continues to see higher rents than the rest of the region with the exception of Harford County which surpassed Annapolis for the highest rental rates in the MSA.
Historical Vacancy Rates
Click on Graphs to Enlarge
Above: Baltimore City, as a whole, continues to experience the highest vacancy rates in the region, however small pockets in the Midtown and newly established South are the exception with rates at 7.67 percent and 6.03 percent respectively.