Overall, 2012 was a good year for leasing in Frederick’s industrial real estate market, at least from an absorption standpoint. Total square footage leased (absorption) quadrupled last year over 2011 levels, with a total of 549,483 SF of industrial space leased during 2012 versus 102,365 SF in 2011. This compares with negative absorption of (70,767) SF in 2010 and (174,193) SF in 2009.Even taking into account that 330,000 SF of increased absorption in 2012 was due to delivery of National Cancer Institute’s new R&D building in Riverside Park during the 2nd quarter, 2012 was still the best year for industrial leasing in Frederick in quite a while.
In terms of sales, 2012 was fairly quiet. There were a couple of large deals cherry-picked by institutional investors, Matan bought some investment properties, and a few owner/users came off the fence to purchase warehouse space for their businesses.
Following are the top 5 industrial real estate deals of 2012:
1) $12,200,000: 7114 and 7118 Geoffrey Way (Wedgewood IV in Frederick)
Emergent BioSolutions sold buildings 1 and 3 in Wedgewood IV to Matan Realty for $12.2 million in March. The total portfolio was 292,000 SF ($41.78/SF). Both industrial buildings are 146,000 SF in size. Both buildings had been vacant since Emergent BioSolutions purchased them in 2005. Matan has the properties listed for lease.
2) $4,457,854: 4484 Quad County Court (84 Lumber in Mt. Airy)
84 Lumber sold their site in Mt. Airy in June to Spirit Realty Capital for a price that computed to $147.25/SF for the building or $3.49/SF for the nearly 30 acres of land. Spirit Realty Capital specializes in financing and investing in single tenant sale/leaseback deals.
3) $3,000,000: 630 Solarex Court (B.P. Solarex in Frederick)
Bristol Frederick, LLC purchased the 157,483 SF BP Solarex property in June for the bargain price of $19.05/SF for the building or $2.00/SF for the 23 acres of land. The property is once again on the market, for sale and lease (65,000 SF). Prices are not listed.
4) $2,999,000: 5245 Westview Drive (Fitness First in Frederick)
Fitness First purchased this 23,011 SF building ($130.33/SF) in March from private owner/investors in Glenelg, Maryland.
5) $1,500,000: 6720 Manor Woods Road in Frederick
Grant County Mulch of West Virginia purchased this industrial warehouse property for about $129/SF in February to expand their mulch business. This property was never listed for sale. The mulch company approached the owner directly to initiate the sale of the property.
Looking forward to 2013, the crystal ball is a little murky.
GDP stumbled during the 4th quarter of 2012, and there were three main drivers behind the slowdown: inventories, exports, and government spending.
Defense spending declined 22% (on an annualized basis) during the 4th quarter of 2012 as government agencies and contractors scaled back in anticipation of sequestration. Defense spending in this area has a much greater impact on the office market than industrial, but because Frederick is so dependent on government jobs and spending it is always worth mentioning when a big change occurs.
Industrial real estate demand is primarily driven by inventories related to manufacturing, construction, and retail.
Major retailers are holding fast to a very tight just-in-time inventory approach. The good news buried in there is that when retail sales do rise, so will inventories and warehouse absorption along with them. I’m not sure how big an impact retail inventories have on Frederick’s industrial real estate market overall.
I do know residential construction will have an impact on industrial real estate demand locally.
New housing construction has a multiplier effect on a local economy: construction jobs, warehouse demand, materials, home sales, etc. Given that the number of residential housing permits issued in Frederick County in 2012 almost doubled from the previous year, one would hope that translates into improved demand for local warehouse space.
than they have been in years, and well below the historical average, which means that building permits will most likely continue to be issued at a brisk(er) pace to meet demand for housing in Frederick.
I’m curious how much of the demand for Frederick’s industrial real estate market is driven by residential construction and retail sales inventories. If any of my readers has insight into that, please comment!
The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com .