MacRo LTD Blog

Commercial Real Estate Market: Waiting to Exhale

White collar job growth is driving demand for the commercial real estate office segment.

PNC-Bank-BuildingHas 2012 been the “Year of Lame Duck” for commercial real estate?

The long awaited presidential election of this week marks the beginning of the end of a long period of uncertainty and paralysis that has effectively stalled America’s great capitalist engines.

Regardless of the outcome, the final results of this election will eliminate at least one unknown keeping corporate American sitting on the fence.  And as for the other issue causing anxiety throughout the business community—sequestration–it will more than likely be another month or two before the dust settles and congress deals with the looming budget cuts.

Once those decisions are made, business owners and corporations can adapt accordingly.  This “knowing” will stoke the economic engines somewhat, even if the outcome isn’t entirely what the business community was hoping for.

But let’s keep our fingers crossed that we will have a business-friendly leader in the Oval Office, because there are signs that corporate America is poised to grow at a healthy clip—given the right conditions.

For one thing, business investment in equipment and software nationwide reached a higher level during this past quarter than where it peaked during the previous economic recovery cycle in 2005.  Corporate profits are still at healthy levels as well.

And, it appears that what little growth the economy is experiencing overall has been driven by white collar jobs instead of the construction industry.  Construction is traditionally the catalyst of economic recoveries, so this represents a new type of recovery altogether—although a much slower one.

Hard to say what this means for the economy overall, but it has been very good for commercial office space demand throughout the U.S., and in Frederick as well.

A review of Frederick County, Maryland’s 3rd quarter 2012 office segment results in the commercial real estate analytics databases of CoStar Group’s commercial real estate analytics database, turns up the following statistics

  • Vacancy rates ticked down to 14.3% versus 15.6% during the 3rd quarter of 2011.
  • Occupancy rates rose to 85.7% from 84.4% during the same quarter last year.
  • Office leasing rates declined slightly to $21.19 per square foot from $22.99 last year.
  • There were 32 office lease deals this quarter, compared with 30 this time last year.

There wasn’t much action in the way of office building sales in Frederick last quarter, but what did sell was a pretty large deal:   the PNC Bank building at 110 Thomas Johnson Drive sold to a real estate investment firm in Connecticut for $16.5 million as part of a portfolio of office buildings that totaled $162 million.  Most of the other buildings in the portfolio were located in Columbia, Maryland.

In terms of large office lease deals in Frederick during the third quarter, Wells Fargo took about 8,000 square feet in a short-term lease in the Ballenger Creek Office Center.

So overall, the office market in Frederick is holding steady, while potential players are holding their breath, waiting to see how the “great unknowns” of this election and the budget crisis are resolved.

Speaking of the election, I hope that you got out there and celebrated our precious democracy by casting your vote!

“In reality, there is no such thing as not voting: you either vote by voting, or you vote by staying home and tacitly doubling the value of some Diehard’s vote.”

David Foster Wallac

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Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board. He also writes for TheTentacle.com.

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