But there is positive news that signals business confidence with increases in lease rates, terms and average unit size!
With the exception of one property, office, flex, retail and warehouse real estate leasing volume activity last year took a major hit across the board according to Frederick County, Maryland statistics pulled from CoStar, the world’s leading database of commercial real estate data.
Before we get into the details, here are the highlights of the good news and bad news:
- The total number of lease deals in Frederick in 2018 decreased by 39% from 2017.
- Taking the warehouse sector out of the equation, the total square feet in the other three sectors leased declined between 1% to 46% in certain sectors.
- The weighted average space size grew from 4,303 SF in ’17 to 7,284 SF in 2018 (+69%).
- The average reported term of leases experienced increased by a minimum of 50% in all sectors.
- With the exception of a decline in the warehouse leasing sector, of those leases reported, rates experienced significant increases.
Let’s break this down by sector and start off with the sector and its one deal that buoyed the stats to give 2018 an 18% increase in total square feet leased compared to the previous year.
In 2017, this sector of Frederick County commercial real estate was on a roll. In just two transactions one property in the Dudrow Industrial Park at 4300 Georgia Pacific Blvd gobbled up 680,000 SF through reported lease renewal with BlueLinx and one with Carter-Jones Lumber Company industrial. When one compares the remaining 314,000 SF of warehouse space leased last year to the total of 490,000 in 2017, it equates to a 39% decrease. The number of lease deals in this sector dropped from 39 to 35. Keep in mind that the 39 transactions of the previous year was an increase of 70% over 2016.
There was over a 200% increase in the average reported lease term from 3.2 years to 9.8 years! But at the same time reported rates fell from $7.50/SF to $7.02/SF in 2018 – quite understandable when one considers the added security of longer lease terms.
Aside from the deals on Georgia Pacific Blvd., the next largest deal was in Building G of Westview Business Park, where St John Properties landed Zortec Partners in 38,400 SF.
While the office leasing market showed modest gains in square feet leased in 2017 over 2016, last year the number fell 26% from ‘17’s 313,000 SF to 233,000 SF. Nearly a quarter of all office leasing happened in two transactions in the second half of last year at Westview Corporate Center at 5280 Corporate Court in the Westview Office Park – a 211,000 SF property acquired by Craig Ruppert’s real estate empire just 2 months ago.
Average square feet leased in this sector dropped by about 1,000 SF to 2,620 SF from ’17 to ’18 … but the average reported lease rate and term rose dramatically from $13.50 to $16.00/SF and 4.6 years to 7.1 years respectively. With the smaller size deals came a 14% drop in the number of transactions down to 88 last year from 2017’s 102.
The good news in the flex sector was the 25% increase in reported lease rates from $7.43/SF to $9.31/SF, but even more so in the reported lease terms from 2017’s 3.8 years to a very nice 8.7 years.
The so-so news is that the number of transactions and average square feet leased each dropped by 1%; so, transactions remained stable at 35 with unit sizes averaging 4,200 SF.
But the bad news is that the total square feet leased plunged 30% from 210,000 in ’17 to 145,000 last year. Part of this could very well be lack of inventory, as much of Frederick’s flex market has leased up well over the last few years.
2017 gave Frederick County’s retail sector a shot in the arm with the total number of deals struck increasing from 40 in 2016 to 69. In addition, the total gross square footage of new deals more than doubled to a four year high of 277,000.
But as in the case of the other three sectors, 2018 slowed things down with the number of deals falling 29% to 49, and gross square feet leased down by 49% to 142,000. To add to that, the average unit size lease fell from 5,400 to 2,900 square feet.
Running in line with flex and office trends, average reported lease rates jumped from 11% from $17.40 to $19.30/SF. Even more so the average reported lease term skyrocketed by 131% from 4.7 to just under 11 years.
The largest deal reported came in the third quarter with a 15,500 SF deal made at Riverview Plaza at 5425 Urbana Pike to Old Navy, which will be making a lot of moms and kids very happy!!!
While activity dropped off across the board, the fact that “… lease rates and lease terms are increasing are very good signs that inventory is tightening, and businesses are gaining more confidence in the prospects for a continued healthy economy.
That’s the way we here at the MacRo Team see it; so let us know how we may be able to help.
Rocky Mackintosh, President of MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland, has been an active member of the Frederick community for over four decades. He has served as chairman of the board of Frederick Memorial Hospital and as a member of the Frederick County Charter Board from 2010 to 2012. He currently serves as chairman of the board of Frederick Mutual Insurance Company. Established in 1843, it is one of the longest enduring businesses in Frederick County.