At the midway point in the year, overall commercial real estate square feet leased in Frederick County nearly equals 2017 full year totals … but we must read between the lines!
All it took was one mega lease renewal to swing the first half of 2018 to exceed 100% of the same period last year. And if that didn’t happen, the delta would be a negative 14%! More later on this point.
Consider these comparative bullet points between this time last year to now:
- Total square feet leased increased from midyear 2017 total of 503,400 to 1,012,600 this year …. Keep in mind the total year stats for 2017 reached 1,290,000 SF!
- Lease rates generally showed significant gains in the office, retail, and flex markets.
- Average size of space leased decreased by as much as 55% in some sectors.
- The total number of transactions in the first 6 months of 2018 was off by only 7 units from the 117 deals during the same six-month period in 2017.
- The average lease term of commercial real estate leases increased by as much as 80% over the same period last year.
Each of the four property type categories (flex space, industrial warehouse, office, and retail) showed positive signs, but at the same time, a few disappointing setbacks. As usual, in most categories, it was the larger transactions that skewed the stats. Only nine of the 110 inked leasing deals reached or surpassed 10,000 square feet, and much smaller than typical deals in most sectors reflected the significant differential between the average and median unit sizes.
Flex:
None of the 16 registered deals signed exceeded 10,000 square feet. A total of 62,500 square feet of flex space was leased, which is a mere 7% less than that of 2017. The average triple net rate increased $0.15 to $7.75 per square foot, and average unit dropped by 7% to just under 4,000 square feet, which ran about even with the median size of 3,850.
Industrial:
This is where eight of the nine deals that exceeded 10,000 square feet took place. With only 15 transactions in this category, it was the renewal of the 580,000 SF BlueLinx lease that consumed over 50% of the total square feet leased in the first half of 2018. Located in the Dudrow Industrial Park at 4300 Georgia Pacific Blvd, according to the details published on CoStar, the landlords renewed the deal for 15 years at a base figure of $4.89 per SF triple net. Generally, the balance of the industrial real estate transactions was spread around most of the major parks in the county.
One transaction of note that must be mentioned here is to give MacRo’s Senior Associate Ashleigh Kiggans a high-five for renegotiating a nearly 20,000 square foot lease renewal for the Frederick Volley Ball Club in the McKinney Industrial Park, also on Georgia Pacific Blvd.
The median industrial unit size was 11,500 square feet, but the average unit was 50,880 square feet, which was a huge jump from the first half of 2017’s 4,700 square feet. The average lease rate fell from $8.82 NNN to $6.31 NNN per square foot, most likely due to the impact of the BlueLinx renewal. The average lease term rose from 3 to over 5 years.
Office:
Compared to the first half of 2017, the same period this year was a sleeper. Only one of the 51 transactions topped 10,000 square feet, where Cbiz Medical Management Professionals took over 20,000 SF at 5235 Westview Drive. The deal was reportedly inked at the rate of $15.55/SF NNN.
Overall the office market leased up 120,000 square feet of space compared to the first half of last year’s 195,810 square feet.
While the average NNN lease rate inched up 6% from last term’s $12.00 NNN to a $12.72 per square foot, the average unit size leased fell from 3,600 to 2,350 square feet. The impact of many much smaller transactions put the median unit size down to 1,360 square feet. Lease terms increased in this category, as well, from last period’s 4.6 years back down to 3.6 years, which is close to 2016 levels.
Retail:
The first half of 2018 ended with 67,000 square feet leased up. While still much better than those of 2015 and 2016, there were no big tenants this time like the 3 that consumed 90,000 square feet of last year’s 161,000 figure.
The total of 28 inked retail leasing deals averaged an NNN lease rate of $17.83 per square foot compared to a lower figure of $15.43 in the first half of last year. Another positive signal here was seen in the lease terms for the comparative periods with 4.13 jumping to 5.3 years. The average size unit leased fell back to 2016 levels to 2,390 from 5,365 square feet. The median unit square footage was a mere 1,800.
[Author’s note: all data used in this post was gathered from statistics provided by CoStar – www.costar.com]
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