A weak residential real estate market hasn?t hurt demand for office space in the Baltimore region, but local developers warn the housing downturn could eventually have an unwanted “trickle-down” effect on commercial building.
“Any CEO is being a little cautious when looking toward the future,” said Randall M. Griffin, president and CEO of Columbia-based Corporate Office Properties Trust, one of the largest owners of suburban office properties in the Baltimore-Washington region.
COPT owns multiple offices in 19 business parks in the region, with a total of 229 office properties in Maryland, Colorado, New Jersey, Pennsylvania and Virginia, totaling 17.7 million rentable square feet. The trust?s office portfolio is about 93 percent occupied.
COPT?s third-quarterfinancial results suggest the trust continues to grow during a slow housing period. The trust?s funds from operations ? a figure used by real estate investment trusts to define cash flow from operations ? increased 26 percent to $32.4 million in the quarter from $24.3 million in same period last year.
In the Baltimore region, COPT?s office vacancy has held steady this year at 10 to 14 percent ? while average asking rental rates have crept above $30 per square foot due to increasing construction costs, Griffin said.
The demand for office space in the Baltimore-Washington corridor remains strong, but development could slow somewhat in 2008, Griffin said. “We?re being somewhat conservative, given the fact we?re seeing the economy slow down and there?s potential for a recession.”
Bill Miller, senior vice president of Baltimore-based NAI KLNB, said companies continue to lease office space throughout the region, though they?re taking a little longer than usual to make those decisions, given the economy?s current state.
“There?s a little bit of a lack of confidence,” Miller said. “The companies are just waiting to see if they?ll be affected before they decide to expand.”
Jerry Wit, senior vice president of marketing for Baltimore-based developer St. John Properties, said analysts have predicted the housing downturn could last until 2010 or 2011.
“We might not see it right now, but the trickle-down could affect the office market,” Wit said. “We could see relatively slow growth in the office market.”
