The Baltimore-area office market could be a challenge for commercial developers and brokers in 2008, as overbuilding and a softening economy become real concerns.
Athan Sunderland, vice president of commercial real estate firm Preston Partners, with offices in Lutherville and Columbia, thinks demand will be strong for Class A industrial space in the coming year, as development slows because of increasing land prices.
“But just the reverse should be true for office space,” Sunderland said.
While the development of industrial space should decrease, several million square feet of office space is opening up in the Baltimore-Washington corridor over the next two years, Sunderland said.
Overbuilding can affect transactions because an increase in supply can lead to a decrease in pricing. According to a National Association of Industrial and Office Properties survey, only 42 percent of national developers expect their office rental rates to increase in 2008. That?s down significantly from last year, when 72 percent of developers expected rents to increase.
In Baltimore, rental rates for Class A office space ranged from between $23 and $24 on the low end to about $27 on the high end, said Tony Casalena, managing director of commercial real estate firm Sperry Van Ness? Baltimore office. Rental rates for Class B office space hovered around $19.
The differences between Class A and Class B office space have to do with building age, location and quality.
Casalena said Baltimore?s office market was “very healthy” in 2007, as the office vacancy rate was about 13 percent. For the new year, Casalena predicted office rental rates would increase 1 percent to 2 percent.
Additionally, the tough credit market has made it harder for brokers to close deals with tenants, Casalena said.
“There?s still going to be a lot of investor interest in the Baltimore market,” Casalena said. “Everything goes in cycles, but I do think we?ve peaked in general.”
