Vacancies are down, leasing activity has increased, but sales transactions decline in the wake of shrinking listing inventories.
The first half of 2013 has been a good one for commercial real estate in Frederick County. Even the beleaguered office market is beginning to improve, both in Frederick and most major metropolitan areas of the U.S.
Nationwide, the main drivers have been a surge in office-using job growth (particularly in energy, technology, and general business services) and the recent easing of commercial lending standards.
Before we get too excited, it’s important to note that the Washington D.C. office market is one of the few that contracted last quarter, as it sits squarely in the crosshairs of the sequestration and budget debates. (The U.S. government contracted nearly 1%, while private industry grew about 3% during the quarter.)
Frederick is somewhat better insulated from sequestration with a higher concentration of private industry, but given our proximity to D.C. and dependence on government contracting it stands to reason the Frederick office market will ultimately feel dampening effects as well.
There weren’t any million dollar sales of office properties last quarter; following are the top 3 office property sales of the quarter:
1) $645,000: 129 East Patrick Street
Wellrock Capital Partners bought this 3,500 square foot downtown office building from John Ingrassia ($184.29/SF) in April.
2) $416,000: 5742 Industry Lane (Key 103.1 Radio Station)
MacRo, Ltd. represented the Marmet family in this deal. They sold the iconic barnlike building that Key 103.1 calls home to Manning Broadcasting, Inc. (the owners/operators of Key 103) in May. The building is 3,939 SF and sits on 1.07 acres ($105.61/SF).
3) $390,000: 21 West 3rd Street
James and Laura Follmer purchased this 2,160 SF from David Blackman April ($180.56/SF).
The leasing market is harder to pin down, as there are no tax records to research and brokers are not always motivated to share lease rates. Overall, vacancies in Frederick dropped to 14.1% from 15.8% during the 2nd quarter of last year, and leasing activity on a total square foot basis increased about 15% over the same period last year.
However, rents on a per-square-foot NNN basis for Class A office space have been dropping in Frederick this year, due to high vacancies and the lure of cheaper flex alternatives.
Following are the top 3 lease deals listed in CoStar for the quarter:
1) 21,126 SF at $16.25 NNN: 321 Ballenger Center Drive (Ballenger Creek Office Center)
2) 9,257 SF at $11.50 NNN: 5310 Spectrum Drive (270 Technology Park)
Telegia Communications signed a 5 year lease for this space. NAI KLNB represented the landlord.
3) 7,569 SF at $27.50 FS: 5283 Corporate Drive (Building B Wormald Corporate Center)
Universal Consulting Services signed a six year lease, with McShea & Co. brokering the deal.
The market for office leases in Frederick will likely continue to lag behind the other commercial real estate segments as a result of shrinking space usage per employee and continuing absorption of vacancies and shadow space.
However, the inventory of office properties listed for sale is slim, which is starting to have an upward pull on prices. We’ve got office listings drawing multiple offers as owner/users and investors compete for a limited pool of properties.
If you are thinking about listing your office building or condo, now is probably a good time.
The author: Kathy Krach is a commercial sales and leasing agent with MacRo.