Leased Space in all CRE sectors increase by 20% from 2015 levels in the first half of 2016, and also all four sectors see surge in lease rates.
The news in the local commercial leasing market is so good thus far this year, the MacRo Team had to share the news a quarter earlier than we did last year!
Yes, the overall market activity is up across the board in many respects in the amount of square footage per unit leased, average lease rate, average lease term and total square footage leased. While the number of lease transactions dropped by about 16%, the first 6 months of this year has displayed a picture of quality over quantity.
The four segments that we looked at are Retail, Office, Industrial Flex and Industrial Warehouse located within the boundaries of Frederick County, Maryland and all of its municipalities.
The real surprise was the bump in the office leasing sector, which helped overshadow market slips elsewhere.
Retail:
Here’s the worst stat you’ll get in this report: about 50,575 square feet (SF) of retail commercial real estate was leased in the first half of 2015 compared to 21,200 this year so far, which is a drop of 58%. The average size of the space leased fell by a factor of a mere 3% or 73 SF against the 1st half of last year’s 2,408 SF. But then again, the average lease terms doubled 2.48 to 5.1 years, while the number of lease transactions only hit 9, being down significantly from 21 by June 30, 2015.
The other good news for retail is that the triple net equivalent lease rates in the retail sector showed a healthy increase from $17.95 to $19.55 per square foot.
Office:
As noted earlier, this sector actually showed a strong trend as compared to the previous year’s period. The vacancies that were left from the prerecession overbuilding and corporate downsizing in its aftermath inched down from 30.6% to 29.1% in most of Frederick County, according to statistics pulled from the CoStar Group. During the first two quarters of 2015 about 83,000 SF was leased with an average unit size of 1,691 SF, and 2016 has shown a strong increase of 41% from the previous year to 116,700 SF leased and unit size jumping by 92% to 3,242 SF!
The average lease rated popped from $11.03/SF NNN to around $13.38 thus far in 2016.
The number of office leasing transactions experienced a 27% fall from 49 to 36 during this period, but this is very much overshadowed by better lease rates, terms and larger unit size.
Flex:
The flex market which bridges a gap between low budget office space and single story warehouse enjoyed a lot of positive news over the 1st half of 2015. The number of transactions doubled from 8 to 16 and also showed a similar percentage pop in the amount of square footage leased from 34,900 to 69,100 SF. The average size unit virtually stayed the same at around 4,350 square feet.
The good news continued for flex in first half results as the average triple net lease rate appears to have experienced a steriodal jump of 64% from 2015’s $5.97 to $9.79/SF.
Warehouse:
Our compilation of CoStar stats showed that the industrial warehouse segment of the market also enjoyed a healthy increase of about 11% from 53,092 to 58,900 square feet leased. The average unit size took a slide – down to 83% of 2015 levels equaling 4,905 SF. Lease rates enjoyed a 28% increase from a triple net figure of $5.69 to $7.28/SF. Our data shows nice pop in transactions with 12 being logged in compared to 9 during the first 2 quarters of 2015.
The warehouse market did have some other news with average lease terms dropping form 3.1 years to 2.0 years thus far this year.
Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He has been an active member of the Frederick, Maryland 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.