2012 end of year office and industrial market report

7/30/2019 2012 End of Year Office and Industrial Market Report

http://slidepdf.com/reader/full/2012-end-of-year-office-and-industrial-market-report 1/20

Commercial Real Estate Services, Worldwide.

2012 IndustrIal /OffIce Market revIew & fOrecast

Baltimore City, Baltimore County and Harford County, maryland

BALTIMORE

HARFORD

BALTIMORE

CITY

It’s the way our services work together

that sets us apart.Global Solutions. Serving the Mid-Atlantic Region Since 1968

Local Expertise.



2012 YEAR END REVIEW


A division of KLNB, founded in 1968.

N THIS ISSUE

012 YEAR END REVIEW 2

AREA MAP 3

MARKET OVERVIEW 4

OFFICE

altimore City - CBD & Waterront 5

altimore County I-83 North & South 6

altimore County - Towson 7

altimore County - West 8

altimore County - East 9

arord County 10

NDUSTRIAL

altimore City 11

altimore County - I-83 North & South 12

altimore County - West 13

altimore County - East 14

altimore County - Southwest 15

arord County 16

AND OVERVIEW 17

NVESTMENT OVERVIEW 18

ERVICES & AFFILIATIONS 19

HE NAI KLNB TEAM 20

EcoNomIc uNcERtAINtY RElAtED to sEquEstRAtIjob gRoWth AND NAtIoNAl fINANcIAl DEbAtE cAuscompANIEs to DEfER REAl EstAtE DEcIsIoNs

Businesses find it extremely difficult to make decisions affecting the short or long-term future ofcompanies when they have uncertainty about economic conditions. This impacts hiring, the purchanew equipment and inventory and, of course, real estate decisions such as signing a lease or purchasbuilding. Both nationally and throughout the Baltimore-Washington, D.C. Corridor marketplace, the hfeeling of “uncertainty” is apparent, fueled by the anticipated sequestration, pending outcome of the Cliff, direction of the job market and solution to the national debt.

This overwhelming air of uncertainty is causing companies and organizations to freeze up, accessituation and defer real estate decisions until more clarity is defined. Other factors related to commreal estate are contributing to the collective decision to hit the “pause” button such as the renpopularity of tele-commuting, job sharing, cloud commuting and collaborated office space environmewell as the renewed emphasis on New Urbanism and reliance on modes of public transportation.

Pessimistic conditions are mirrored in the investment sales sector as potential buyers predict depressflat rental rates and prolonged leasing periods, which improvement is not expected to occur until 202016. There remains investor interest among bulk warehouse, institutional-quality office buildings inmarkets, grocery-anchored retail and multi-family housing. Apartments are the shining star among aestate product types.

There are also many reasons to be optimistic about 2013, especially within this marketplace whichand again has proven to be extremely resilient, with an extended track record of success. Our proximthe Federal Government, the just-concluded BRAC expansion, overall industry diversity and the emecyber-security initiatives remain powerful economic drivers. These reasons include:

Minimization of sequestration: An anticipated 10% spending cut in the federal budget includinDepartment of Defense would inflict a painful dent in the Maryland economy, including all real esectors. There exists behind-the-scenes lobbying efforts to reduce these cuts and its relative impaour region.

Rapid resolution of Fiscal Cliff: Negotiations were also in play to minimize the effect of the so-called Cliff related to payroll tax cuts and Bush tax cuts that are projected to remove approximately $700 from our country’s economy. A quick resolution would start 2013 off on the right note.

Continued growth of cyber-security initiatives: Commercial real estate activities - particularly surrouFort Meade in Anne Arundel County - are centered around emerging cyber-security initiatives, witsector viewed as the knight in shining armor and replacement to BRAC expansion. Numerousuniversities have initiated cyber-security curriculum, adding additional optimism about long-term pros

Intelligence Community contracts: More than $500 million worth of contracts for Intelligence Commwork, much of this emanating from the Annapolis Junction Revenue Support Field Office, is expecflow into the State’s economy. The commercial real estate industry is expected to be a major benefic

The commercial real estate sector is still keeping its eye on other trends and situations with posignificant impact on our business. This includes the formation or reduction of jobs in the State of Mar(which is always the number one indicator in the direction of our industry); office space downsizinthe conversion of space to a “collaborated” environment causing smaller footprints; and the shift to “commuting” which creates less demand for on-site computer server rooms.

The only thing certain about the state of commercial real estate and the investment sales marketplathe State of Maryland is its uncertainty. And, because businesses abhor uncertain conditions, a staparalysis has set in. Like everything else in life “this too will pass” and we can expect the overall econmight of the Baltimore-Washington Corridor to keep this region on the relative top-end of the nationaestate barometer.

2



Chesapeake Bay

BALTIMORECOUNTY EAST

I-95 NORTHCORRIDOR

HARFORD COUNTY

BALTIMORE COUNTY

BALTIMORE

CITY

I-83 NORTH

I-83 SOUTH

TOWSON

REISTERSTOWNROAD

WOODLAWN

BALTIMORE

CITY

CBD &WATERFRONT

1

95

95

95

83

83

395

795 40

4070

40

AREA mAp

BALTIMORE

HARFORD

BALTIMORECITY

N

3



mARKEt # ofbuIlDINgs

RbA totAlVAcANt (sf)

VAcANcYRAtE

DIREct%

NEtAbsoRptIoN

RENtAl RAtEpsf

(AVERAgE)

coNstRuctcomplEtIoNs

ffIcE mARKEt

aire ciy

ass A 54 13,487,853 1,972,416 13.2% 107,804 $23.68 33,942

ass B 309 12,186,219 1,465,955 11.9% 70,173 $17.81 0

aire cny -I-83 Nr/s

ass A 49 4,686,585 480,677 10% 2,477 $21.85/FS 126,400

ass B 56 2,492,128 329,256 13.2% (15,763) $20.90/FS 0

aire cny - twn

ass A 22 305,298 305,298 13.7% (12,144) $23.11 0

ass B 136 518,815 518,815 11.5% (4,476) $18.55 0

aire cny - We

ass A 36 3,950,841 565,898 13% (5,126) $21.67 0

ass B 225 6,952,721 747,958 10% 55,200 $18.21 0

aire cny - Ea

ass A 11 564,772 150,682 26.3% 0 $23.49/FS 0

ass B 241 2,751,524 304,745 10.9% (2,115) $19.49/FS 0

aire cny - totAls

ass A 118 9,507,496 1,502,555 15.8% (14,973) $22.53 126,400

ass B 658 12,715,188 1,900,774 14.9%13. 48,609 $19.29 0

arrd cny

ass A 17 1,425,184 629,904 42.3% (5,204) $30.78/FS 210,000

ass B 266 2,703,258 289,839 10% 4,511 $20.74/FS 0

NDustRIAl mARKEt

aire ciy

ulk 106 11,094,000 759,000 6.8% (119,000) $3.65 0

fce/Warehouse 139 6,789,000 782,000 11.5% 41,000 $4.40 0ex 278 8,530,000 625,000 7.2% 106,000 $4.55 0

83 Nr/s

ulk 19 2,056,815 276,159 13.4% (51,508) $6.35 0

fce/Warehouse 33 2,959,866 193,494 6.5% (5,773) $5.80 0

ex 75 3,744,846 173,596 4.6% 53,905 $9.81 0

aire cny - Ea

ulk 95 14,430,210 2,492,602 16.9% (253,972) $3.81 0

fce/Warehouse 112 9,941,155 1,546,256 15.2% (345,741) $4.97 0

ex 152 10,120,438 1,664,368 16.3% (388,188) $6.29 0

aire cny - We

ulk 36 3,383,824 116,390 3.4% 2,247 $4.54 0

fce/Warehouse 42 1,798,901 203,529 11.3% 45,387 $5.11 0

ex 114 3,951,157 393,777 9.8% 49,440 $8.73 0

aire cny - swe

ulk 26 3,239,000 222,000 6.9% 150,000 $4.25 0

fce/Warehouse 45 3,188,000 664,000 20.8% (4,000) $3.85 0

ex 39 1,668,000 347,000 21% (31,000) $6.95 0

aire cny - totAls

ulk 176 23,109,849 3,107,151 13.4% (153,233) $4.74 0

fce/Warehouse 232 17,887,922 3,389,279 18.9% (310,127) $4.93 0

ex 380 19,484,441 3,203,741 16.4% (315,843) $7.95 0

arrd cny

ulk 73 13,850,680 1,744,936 11.3% 622,931 $5.18 1,000,000

fce/Warehouse 44 2,903,575 328,484 11.1% (27,432) $7.69 0

ex 78 3,333,315 388,005 11.4% (79,352) $10.34 0

mARKEt oVERVIEW



FORECAST

et Absorption

MARKET OVERVIEW

The Baltimore CBD/Waterfront office market absorbed nearly 178,000 square feet of space in 2012. This helped drive downvacancy rates in both the Class “A” and Class “B” space in the submarket. The Class “A” vacancy rate space finished the year at 13.2% (a 1.2% drop from 2011), while Class “B” was 11.9% (down half a percentage point). Although vacancy dropped, it isstill relatively high historically and rents have remained stagnant in most locations. Asking rents for Class “A” space still hover inthe area of $23 per square foot and for Class “B” space, remain in the $17-18 per square foot range or less.

Prospective tenant activity remained in the small tenant category with no blockbuster sized leases signed in the entire year,though renewal activity remained pretty consistent in a positive sign.

The market’s most noteworthy sales transactions during the year were the $7.45 million purchase of the 60,432-square-foot 209W. Fayette Street building and the late year sale of 10 Light Street, the 360,000-square-foot former Maryland National Bankbuilding. 10 Light Street has been a CBD landmark office building since 1929, but as the $6 million price reflects, it has seenbetter days. Its buyer plans to renovate it from office space to multi-family which has become a trend in the CBD for Class “B”and lesser office buildings.

There is no new office space under construction currently, though there are several potential prominent sites near the Inner Harbor and at Harbor East that are sure to be developed at some date in the future. Potential proposed office projects includeHarbour’s Edge project of Corporate Office Properties Trust in the Canton area, an 11-story building of 470,000 square feet of space. The Mechanic Theater project at Baltimore and Charles Street is planned to be 30 stories and 156,000 square feet,offering a combination of residential units and retail space. Finally, at 400 South Central at Harbor East there is a three-story,126,000 square foot building proposed

The building at 1111 Light Street, a 33,942 square foot, eight-story building in the Federal Hill area delivered in February 2012and is now fully leased to street level retailers and upper floor office users.

The largest vacancy in the market is the PNC building which has 336,997 square feet available, slightly less than year-end2011. The other large vacancies remain at 225 N Calvert with 323,990 and 1 South Street with 154,105 square feet containingthe next largest blocks of space.

MARKET OUTLOOK

With most of the same economic factors in place in 2013 as in 2012, the coming year is likely to be much like the last.Uncertainty with national government and economics filters down to all local markets, so we see nothing on the horizon to providea major jumpstart to office momentum for the foreseeable future. The threat of potentially large cuts to the federal budget hasa profound impact on Maryland reaching to Baltimore City. Federal agencies and contractors make up a large percentage of office tenants throughout Central Maryland, and uncertainty about the national budget has caused them to be more cautiousabout leasing new space. Therefore, we believe vacancy and rental rates will move little in the coming year, unless negatively if those cuts should occur. No new construction is a positive in that it will likely allow continued slow moves in positive absorptionof available office space. Also, the trend we noted of offices being increasingly purchased to be renovated into multi-family spacewill also remove a fair amount of older office inventory from the market which will also be a positive.

Financial services, law firms, and health care are still the predominant positive growth forces for the overall CBD/Waterfrontoffice market. The continuing major influences of Johns Hopkins Hospital on the east side and University of Maryland MedicalCenter on the west side bring their own space uses along with those of subsidiary and contract spin-offs which have a dramaticimpact on space. Both institutions seem to continue to experience growth year over year and help keep the market much morestabilized than it would be without them.

The possibility of a new State of Maryland office complex north of the CBD is still on the drawing board. Should that developmentactually happen, it could still be one of the single biggest impacts on the CBD office market in many years.

Vacancy Rate (%)

STATISTICS

Building Type Class A Class B

Number of Buildings 54 309

New/Relet Vacant (SF) 1,773,714 1,444,473

Sublease Vacant (SF) 198,702 21,482

Total Vacant (SF) 1,972,416 1,465,955

Total Existing RBA (SF) 13,487,853 12,186,219

Vacancy Rate Direct % 13.2% 11.9%

Vacancy Rate Sublease % 1.5% 0.2%

Net Absorption (SF) 107,804 70,173

Average Rental Rate (Full Service) $23.68 $17.81

2012 Completed Construction SF 33,942 0

2013 Planned Construction 0 0

NOTABLE ACTIVITYASINg TrANSACTIONSnant Address SF Classcobs Egineering 100 S. Charles Street 20,050 Aversity of Maryland Medical 200 W. Pratt Street 18,165 Aeco Scotsman 901 S. Bond Street 30,784 Aund 2 Communications 400 E. Pratt Street 15,467 AILDINg SALES - INVESTMENTdress Size Price Price PSF Class Buyer Seller LIght Street 360,000 $6,000,000 $16.66 B Metropolitan Partnership NellisS. Charles Street 121,438 $3,100,000 $25.50 B Sky Management LNR Property9 W. Fayette Street 60,432 $7,450,000 $123.00 B Blue Ocean 209 CVLY LLC4 S. Ann Street 15,000 $1,400,000 $93.00 B Schoolhouse Properties D&K AssetsND SALES - INVESTMENTdress Size Price Price Per Acre Buyer Seller 41 Eastern Avenue 6.14 Acres $1,225,000 $200,000 SB Baltimore BTR Capital0 E. Fort Avenue 2.46 Acres $3,500,000 $1,400,000 900 E. Fort General ElectricILDINgS DELIVErED - 2012dress RBA SF Delivery Date Asking Rent PSF Owner/Developer

1 Light Street 33,942 2/2012 $22.50 Caves Valley

Market Inventory (%)

ca A52.5%

ca b47.5%

0%

2%

4%

6%

8%

10%12%

14%

16%

18%

2010 2011 2012

Class A Vacancy Rate

Relet Sublet

0%

2%

4%

6%

8%

10%

12%

14%

2010 2011 2012

Class B Vacancy Rate

Relet Sublet

-100

-50

0

50

100

150

200

250

300

350

400

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)

Class A Class B

Vacancy Rate

Asking Rents

5

OffICE MArKETaltimore City - CBd & Waterfront

Construction



OffICE MArKETBaltimore County - i-83 nortH and SoutH

FORECAST

et Absorption

ConstructionMARKET OVERVIEW

The Interstate 83 North and South Markets consist of both Class “A” and Class “B” officebuildings located north of the I-695 Beltway through Timonium, Hunt Valley and Sparks in theNorthern Baltimore County suburbs. The focal point in this market of seven million square feetof office buildings is Hunt Valley, home to many Fortune 500 corporate regional offices.

Some of the biggest news in the Hunt Valley market was not necessarily related to leasing as itwas to the investment sales of major office buildings. Corporate Office Properties Trust (COPT)continued its disposition process in July by selling five office buildings of 700,000 square feet for $96 million ($137.84 per square foot) to Greenfield Partners. One of those properties included10150 York Road that garnered a 54,000 square foot lease by Diamond Comics at the end of the year.

As predicted a year ago, the sale of the vacant office building at 11011 McCormick Road for $60.00 per square foot to a user had profound effects in 2013. This well below market saleattracted numerous prospective buyers to the market, unfortunately too many owners electedto ignore the sale comp information and held on to their assets in an effort to achieve higher

future gains.

MARKET OUTLOOK

There is a new major property owner in town with Greenfield Partners acquisition of the COPTportfolio. However, Greenfield also has other major office buildings under contract which arescheduled to close in January 2013. It will be interesting to see how Greenfield makes itspresence known.

Entering 2013 with a 10% vacancy rate for Class “A” properties could slant the pendulum towardthe landlord side. There are only three Class “A” buildings offering 30,000 square feet of spaceavailable as of January 1, 2013.

STATISTICS



New/Relet Vacant (SF) 468,585 329,256Sublease Vacant (SF) 12,092 0

Total Vacant (SF) 480,677 329,256


Vacancy Rate Direct % 10% 13.2%

Vacancy Rate Sublease % 0.3% 0%

Net Absorption (SF) 2,477 (15,763)

Average Rental Rate (Full Service) $21.85/FS $20.90/FS



NOTABLE ACTIVITYASINg TrANSACTIONS

nant Address SF Classst Data (Renewal) 11311 McCormick 24,049 Alis Insurance 225 Schilling Circle 22,664 AC 225 Schilling Circle 16,316 A

mada 230 Schilling Circle 11,080 Ata Networks 309 International Circle 10,679 BbilexUSA 930 Ridgebrook Road 10,600 AILDINg SALES - INVESTMENT

dress Size Price Price PSF Class Buyer Seller rtfolio 700,000 $96,000,000 $137.64 A&B Greenfield Partners COPT2/224 Schilling Circle 84,972 $4,400,000 $51.78 B Titan Industrial Services COPT8 W. Timonium Road 22,700 $3,200,000 $140.97 B Deronda 108 West Timonium WGTJ, PA12 BUILDINgS DELIVErED

dress RBA SF Delivery Date Asking Rent PSF Owner/Developer 5 Schilling Circle 126,400 8/2012 $26.50 +Electric/Snow Merritt Properties


ca A65%

ca b35%

0%

2%

4%

6%

8%

10%

12%

2010 2011 2012


Relet Sublet

0%

2%4%

6%

8%

10%

12%

14%

2010 2011 2012


Relet Sublet

-20

-10

0

10

20

30

40

50

60

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)

Class A Class B

Vacancy Rate

6

Asking Rents



OffICE MArKETBaltimore County - toWSon

FORECAST

MARKET OVERVIEW

The Towson Office Market appears healthy due to the success of One Olympic Place in Towson CityCenter (shown on the cover of this report), which was formerly known as the Investment Building. Thisredeveloped project now boasts 100% occupancy, with some of the recent tenant signings includingWMS Partners, Remedi SeniorCare, and the further expansion of Towson University.

Most landlords are working with their existing tenants to avoid future vacancies. Towson Commonscontinues to sit with a large amount of vacant space, although rumors suggest they are holding thetenth floor and some of the other vacant areas for one of their existing tenants. There does not appear to be any immediate solution to what will happen with the former Towson Commons theaters andground floor retail space along Pennsylvania and York Roads unless the existing tenant or rumoredfitness center expands into that as well. 501 Fairmont recently announced the leasing of approximately10,000 square feet of space to Cole Taylor Equipment.

MARKET OUTLOOK

Towson Circle III, now called Towson Square, will commence construction in January 2013 whichcould create positive momentum for the entire Towson Core by helping to attract future office users.

The project will be the entertainment center for the county. Cinemark Theatres is anchoring the $85Mdevelopment along with a projected eight restaurants.

The landmark Hampton Plaza (pictured above) is completing a major renovation of its’ first floor lobby.With two full floors of vacancy coming on line, the renovations are proving effective considering severalmajor tenants are negotiating deals in the building.

STATISTICS



New/Relet Vacant (SF) 301,518 514,202Sublease Vacant (SF) 3,780 4,613

Total Vacant (SF) 305,298 518,815

Total Existing RBA (SF) 305,298 518,815

Vacancy Rate Direct % 13.7% 11.5%


Net Absorption (SF) (12,144) (4,476)


2012 Completed Construction SF 0 0


NOTABLE ACTIVITYEASINg TrANSACTIONSnant Address SF Class

ocial Security Administration 849 Fairmount Avenue 21,344 Ablic Defenders 200 W. Towsontowne 14,569 BMS 1 Olympic Place 12,192 Aashington & Wade LLC 1 Olympic Place 12,192 Aemedi Senior Care 1 Olympic Place 12,192 Aepartment of Juvenile Services 308 Washington Avenue 8,593 B


ca A35%

ca b65%

0%

2%

4%

6%

8%

10%12%

14%

16%

18%

2010 2011 201


Relet Sublet

0%

2%4%

6%

8%

10%

12%

2010 2011 201


Relet Sublet

-150

-100

-50

0

50

100

150

2010 2011 201

T h o u s a n d s

Net Absorption (SF)

Class A Class B

Vacancy Rate

et Absorption

Asking Rents

7

Construction



OffICE MArKETBaltimore County - WeSt

FORECAST

et Absorption

MARKET OVERVIEW

The Baltimore County West office market, consisting of the Woodlawn and Reisterstown Road submarkets, hada negative absorption of approximately 5,000 square feet for Class “A” office product and a positive absorptionof approximately 55,000 square feet for Class “B” office product. This resulted in an increase of the Class “A”vacancy rate to 13% and a slight decrease of the Class “B” vacancy rate to 10%. These rates contributed to alack of new construction for the submarkets in 2011. Asking rents for Class “A” and Class “B” space remained flatin the $21-22 per square foot and $18 ranges, respectfully.

One significant investment sale transaction for 2012 was the sale of 7210 Ambassador Road in Windsor Mille, MD,a 78,131 square foot Class “B” office building. This building was purchased by Government Properties IncomeTrust from CSG Partners and Blue Vista Capital for $14.450 million ($184.95 per square foot). Another noteworthysale was 757 Frederick Road LLC’s purchase of 757 Frederick Road in Catonsville from SRBR MEP ConsultingEngineers for $2.539 million ($89.09 per square foot). In addition, Hillendale Properties’ purchase of 11431 and11435 Cronhill Drive in Owings Mills for $3.75 million ($96.70 per square foot) from First Potomac Realty Trust wasalso a significant 2012 transaction in the Baltimore County West office market.

One major development, the Metro Centre in Owings Mills (a Transit-Oriented Development) is under constructionwith a mid-2013 delivery date for its first phase. Developed by Owings Mills Transit, LLC, this major developmentis planned to ultimately included office (1.2 million square feet), residential (1,700 Class “A” units), Retail &Restaurants (300,000 square feet), Public Library (40,000 square feet), Community College (80,000 square feet),Hotel (up to 250 rooms), and parking (over 11,000 spaces in 5 garages).

MARKET OUTLOOK

The tenants of the Woodlawn submarket continue to include the distribution and operations of numerouscompanies, government contractors such as Lockheed Martin, the federal government headquarters of theCenter for Medicare and Medicaid Services and the Social Security Administration, and the U.S. General Services

Administration (GSA). The Reisterstown Road submarket continues to include insurance, financial and medicaland healthcare related companies because of its live-work setting that consists of commercial office and flex/industrial development near a metro subway station and residential homes located around a Regional Mall. It isexpected that the 2013 Baltimore County West market conditions will continue to reflect the depressed nationaleconomy as has been seen by the market in the past few years. Although there was a lack of new buildingdeliveries in 2012, the mid-2013 delivery of the first phase of the Metro Centre in Owings Mills is a positive notefor the market.

STATISTICS



New/Relet Vacant (SF) 565,898 690,527Sublease Vacant (SF) 0 52,431

Total Vacant (SF) 565,898 747,958


Vacancy Rate Direct % 13% 10%

Vacancy Rate Sublease % 0% 1%

Net Absorption (SF) (5,126) 55,200


2012 Completed Construction SF 0 0


NOTABLE ACTIVITYASINg TrANSACTIONS

nant Address SF ClassV Incorporated 2125 Ambassador Road 27,000 (Renewal) B ckheed Martin 3114 Lord Baltimore Drive 23,733 B

UILDINg SALES - INVESTMENTdress Size Price Price PSF Class Buyer Seller 10 Ambassador Road 78,131 $14,450,000 $184.95 B Gov’t Properties Income Trust CSG Parnters & Blue Vista Capital7 Frederick Road 28,500 $ 2,539,000 $ 89.09 B 757 Frederick Road LLC SRBR MEP Consulting Engineers

013 pLANNED CONSTrUCTION

dress RBA SF Delivery Date Price PSF Owner/Developer

etro Centre at Owings Mills 200,000 mid-year $25.00/FS Owings Mills Transit, LLC


ca A36%

ca b64%

0%

2%

4%

6%

8%

10%

12%

14%

2010 2011 2012


Relet Sublet

0%

2%

4%

6%

8%

10%

12%

2010 2011 2012


Relet Sublet

-120

-100

-80

-60

-40

-20

0

20

40

60

80

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)

Class A Class B

Asking Rents

Vacancy Rate

Construction

8



FORECAST

et Absorption

MARKET OVERVIEW

The Harford County office market consists primarily of the area closest to the county seat of Bel Air and the area near Aberdeen Proving Ground (APG), with the APG office market being the focus of thenarrative of this report.

In a market that experiences a 42% vacancy factor, there is considerable concern by property owners.St. John Properties may be the most fortunate developer at APG due to the fact that The Governmentand Technology Enterprise (The GATE) business community is located inside “the gates” of APG,where defense contractors prefer to operate. St. John Properties completed more than 100,000 squarefeet of leasing in 2012 including 26,000 square feet to CSC and 10,000 square feet with LockheedMartin, even in the face of federal sequestration. St. John Properties delivered a 75,000 square footmulti-story class “A” office building and a 29,400 square foot story office building.

MARKET OUTLOOK

Several office properties outside the grounds of APG will continue to struggle during 2013. Accordingto a prominent APG developer, economic times and threatened federal sequestration are concerning,

but APG is the future of our national defense. The things that are being designed, tested, purchasedand managed at APG are the future tools of the U.S. warfighter. It is not an installation with a singleat-risk program like a plane or a ship; it is not an installation with a high troop count (at risk for staff reductions). It is a gathering for engineering and technology for intelligence, surveillance, andrecognizance. The world is not becoming more stable or secure. This perspective illustrates thereasons BRAC invested in Aberdeen in the first place. There may be short-term concerns with theoffice market, but the long term future appears bright.

STATISTICS



New/Relet Vacant (SF) 603,174 270,320Sublease Vacant (SF) 26,730 19,519

Total Vacant (SF) 629,904 289,839


Vacancy Rate Direct % 42.3% 10%


Net Absorption (SF) (5,204) 4,511

Average Rental Rate (Full Service) $30.78/FS $20.74/FS



NOTABLE ACTIVITYASINg TrANSACTIONSnant Address SF Class C 6200 Guardian Gateway 26,475 Ackheed Martin 6180 Guardian Gateway 10,997 Bgressive MRI 100 Fulford Avenue 8,000 BILDINg SALES - USErdress SF Price Price PSF Class Buyer Seller 94 Millennium Dirve 17,885 $4,332,811 $242.46 A MTWE Lot5 Service Engineering Co.

2 Rock Spring 13,300 $672,520 $50.57 B K Dental Realty Rock Spring West9 Bel Air Avenue 10,502 $825,000 $78.56 B C&G Commercial Two Hundred Nineteen West5 Pennington 7,000 $400,000 $57.14 C 415 Pennington LLC Eleanor McIlhenney12 BUILDINgS DELIVErEDdress RBA SF Delivery Date Asking Rent PSF Owner/Developer eside Commons 120,000 March 2012 $32.50 Sherwood Partnerserdeen Corporate Park 90,000 February 2012 TBD Merritt Properties90 Guardian Gateway 75,000 June 2012 TBD St. John Properties


ca A35%

ca b65%

0%

5%

10%

15%

20%

25%

30%35%

40%

45%

2010 2011 2012


Relet Sublet

0%

2%4%

6%

8%

10%

12%

2010 2011 2012


Relet Sublet

-50

0

50

100

150

200

250

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)

Class A Class B

Construction

Asking Rents

arford County

OffICE MArKET

10

Vacancy Rate



STATISTICS

Building Product Bulk Ofce/Warehouse Flex

Number of Buildings 106 139 278

New/Relet Vacant (SF) 759,000 728,000 617,000

Sublease Vacant (SF) 0 0 8,000

Total Vacant (SF) 759,000 782,000 625,000

Total Existing RBA (SF) 11,094,000 6,789,000 8,530,000

Vacancy Rate Direct % 6.8% 11.5% 7.2%

Vacancy Rate Sublease % 0% 0% 0.1%

Net Absorption (SF) (119,000) 41,000 106,000

Average Rental Rate (NNN) $3.65 $4.40 $4.55

2012 Completed Construction SF 0 0 0

2013 Planned Construction SF 0 30,000 0

FORECAST

et Absorption

MARKET OVERVIEW

Perhaps the best way to describe the overall industrial real estate market in Baltimore City is“consistent.” There was no new construction in 2012, so the market size remains unchanged from ayear ago (and the year before that, as well). Current vacancy stands at 8.1% as compared to 8.2% atthe end of 2011. The only real change is that absorption moved into positive territory at 28,000 squarefeet, versus last year’s negative 55,000 square feet. Modern bulk product, with its higher ceilingsenjoys the lowest vacancy rate of the three types of product reviewed in this report, however it didexperience negative absorption as compared with Flex and Office/Warehouse. Deal velocity still wasrestrained, as many tenants and buyers were cautious in this election year. Although rates moved upsomewhat as compared to a year ago, there were still opportunities for tenants/buyers to upgrade or re-locate their businesses at very attractive rates. The City, along with the expansion of the medical andeducational community continues to revitalize both the East and West sides of Baltimore.

MARKET OUTLOOK

There are some promising trends that will likely help the industrial marketplace in Baltimore city for 2013. To the east, the Port of Baltimore continues to grow especially with the addition of four super-sized cranes which, when combined with the construction of a new deep berth, will accommodatethe extra large container ships traveling through the newly-expanded Panama Canal. To the west,gambling has been approved for a long vacant site formerly known as Maryland Chemical, spurringdevelopment along Russell Street near the football and baseball stadium complex. Additionally, the cityis going through a comprehensive zoning review that will hopefully tie a more thoughtful and relevantgrowth plan together with the businesses and residences in the area.

The City has a solid infrastructure, with its proximity to major highways, port and rail access, accessibilityto Washington, D.C. and its ever-expanding medical and educational community. Vacancy rates havedipped below 8% in certain segments of the market and we believe this could push rental rates upwardfor modern, in-demand property. Combined with low interest rates, there is anticipation of increasedactivity for both sales and leasing in 2013.

NOTABLE ACTIVITYASINg TrANSACTIONSnant Address SF Productg Therapeutics 825 North Point Road 6,000 Flexvation Army 3030 Nieman Ave 15,150 Flexfessional Restorations 6600 Frankford Ave 38,700 Office/WarehouseILDINg SALES - INVESTMENT

dress Size Price Price PSF Product Buyer Seller 1 Brookhill Rd 165,000 $4,100,000 $24.86 O/W BrookHill GBC Continental0 James Street 28,250 $1,250,000 $44.25 O/W Paristole Mgmt Marshall BrandtILDINg SALES - USEr

dress Size Price Price PSF Product Buyer Seller 1 W. Patapsco Avenue 100,000 $4,250,000 $42.50 Bulk Jetro H & J Weinberg Foundation N. Kresson St. 145,000 $3,450,000 $23.79 O/W Charm City Warehouse Merchants Baltimore Gusryan St. 44,400 $3,027,000 $68.00 Bulk CDS Property Management Gusryan LPND SALES - INVESTOrdress Size Price Price Per Acre Product Buyer Seller 0 Fort Armistead Rd 6.2 acres $325,000 $52,419 Industrial Art Homes LLC/Omid Land Group 3800 Recycling LLCND SALES - USErdress Size Price Price Per Acre Product Buyer Seller

1 E. Monument Street 5.77 acres $1,390,000 $241,000 Industrial Donatus Agupusi AM Keefe Transport

-400

-300

-200

-100

0

100

200

300

400

500

600

700

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)

Vacancy Rate


42%

26%

32%

Bulk

Ofce/Warehouse

Flex

Asking Rents

11

Vacancy Rate

0%

2%

4%

6%

8%

10%

12%

14%

2010 2011 2012

NDUSTrIAL MArKETaltimore City

Construction



STATISTICS



New/Relet Vacant (SF) 276,159 193,444 173,596Sublease Vacant (SF) 0 0 0

Total Vacant (SF) 276,159 193,494 173,596



Vacancy Rate Sublease % 0 0 0

Net Absorption (SF) (51,508) (5,773) 53,905



2013 Planned Construction SF 0 0 0

FORECAST

MARKET OVERVIEW

The Baltimore County I-83 North and South market represents a micro-market with limited potential for growth in the traditional sense. Essentially it consists of an “island” with no land available for expansionor future development and only offers redevelopment and infill opportunities. Once a mecca for regionalmanufacturing companies, most have been driven out by a combination of factors including the lack of a blue collar type labor force and high real estate costs. Many of these single-user facilities have beenconverted to multi-tenant speculative properties catering to flex-type service companies. In some cases,due to general functional obsolescence, the aging buildings have been replaced with multi-story officestructures.

The major industrial hold-out has been McCormick & Company (of spice fame) who remains the largestemployer in the market. In addition to their corporate headquarters, McCormick operates several sizeablemanufacturing plants in the area. However, even they recently relocated their main distribution facility toanother county. Indirectly, there are many companies in the I-83 market that remain in the area to supportand service the McCormick account.

In 2012, there was an overall decline in vacancy rates within bulk, office/warehouse, and flex typeproperties. The majority of the activity fell into the flex category which saw the vacancy rates steadilyfall from a high of 17.8% in 2009 to the current level of 4.6%. The correlating rental rates have risen byalmost 20% as the market continues to tighten. As the housing market begins to gain some traction, manycompanies such as the building market supply houses including paint, carpet, electric and plumbing shouldbegin to rebound as well.

MARKET OUTLOOK

Through new leases and expansions, overall activity should continue to increase in all sectors. As positiveabsorption occurs, this works to drive vacancy rates down. Low vacancy generally means higher prices- the basic economic platform of supply vs. demand. As rates trend upward, the adverse effect can be topush some companies to seek refuge in more affordable neighboring markets. While not immune to globaleconomic conditions, this micro-market is somewhat insulated due to the “island effect” it enjoys, whichcan sometimes viewed as both a blessing and a curse.

NOTABLE ACTIVITYASINg TrANSACTIONSnant Address SF ProductCormick 16-20 Stenerson Lane 69,292 BulktenGach Business Systems 10945 McCormick Road 29,400 Bulk

d Atlantic Air 21-23 W. Aylesbury Lane 23,559 Office/WarehouseL Distribution Co. 11100 Gilroy Road 22,986 Bulkperimental Machine 10915 McCormick Road 12,000 Bulknstantine Commercial 9494 Deereco Road 5,550 Flexle Cose 9472 Deereco Road 4,750 Flexurice Electrical Supply 9603 Deereco Road 8,563 Flex

alton Associates 101 Lakefront Drive 3,130 FlexILDINg SALES - USErdress Size (SF) Price Price PSF Buyer Seller

Beaver Court 105,904 $6,200,000 $117.19 Extra Space Storage Rhodes Development33 Greenspring Drive 4,900 $655,000 $133.67 Quartner Properties Libertini Edward A Trust

NDUSTrIAL MArKETBaltimore County - i-83 nortH and SoutH

Vacancy Rate

Asking Rents

et Absorption

, , ,

, , ,

, , ,

-100

-50

0

50

100

150

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)


34%

43%23%

Bulk

Ofce/Warehouse

Flex

12

Vacancy Rate

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2010 2011 2012

Construction



NDUSTrIAL MArKETaltimore County - WeSt

STATISTICS

Bulk Ofce/Warehouse Flex


New/Relet Vacant (SF) 116,390 203,529 387,527

Sublease Vacant (SF) 0 0 6,250

Total Vacant (SF) 116,390 203,529 393,777



Vacancy Rate Sublease % 0.0% 0.0% 0.2%

Net Absorption (SF) 2,247 45,387 49,440




FORECAST

MARKET OVERVIEW

The Baltimore County West industrial market encompasses the areas of Owings Mills, Woodlawn andCatonsville, which are all easily accessible from the Baltimore Beltway (I-695) and the Light Rail which runsparallel along I-795. The majority of Bulk and Office/Warehouse product is concentrated in Woodlawn whileOwings Mills is heavily comprised of flex/office product. The total submarket is comprised of 192 industrialbuildings of which 114 are flex buildings. For those companies in need of true industrial product in OwingsMills, a higher rental rate can be expected due to the lack of this product class.

For 2012, Baltimore County West’s commercial real estate market demonstrated signs of a rebound. Adecrease in overall vacancy, rising absorption, and the stability and slight rise of rental rates all representleading indicators to this submarket heading in the right direction. Property owners hope to carry thismomentum into 2013.

The Solo Cup manufacturing building (approximately 1.7 million square feet) situated on 52 acres sold in 2011.The buyer (a joint venture partnership between Greenberg Gibbons Corporation and Vanguard Equities) plansto raze the building and redevelop it into a “small scale Hunt Valley Towne Centre” open air retail property calledFoundry Row. Wegmans Food Market has signed a lease as the anchor tenant; however ownership continuesto work through issues to achieve final rezoning of the property.

In an effort to sell off non-core product, First Potomac Realty has disposed two flex buildings in Owings Millsto Hillendale Properties. The buildings total 38,779 square ffet and sold for $3.75 million or $96.70 per squarefoot. Hillendale Properties plans to occupy approximately 20,000 square feet of space in the buildings whichwas helpful to obtain favorable financing by lenders.

MARKET OUTLOOK

Similar to last year, there were no new building deliveries in 2012 and speculative construction remainsguarded for 2013. Occupancy levels remain stable with positive absorption across all product types. This isnoteworthy and encouraging since positive absorption for all product types has not occurred in several years inthis submarket. It is expected that tenants will continue to see aggressive offers and incentives from landlordscompeting for their business with an abundance of options available. This is an ideal climate for tenants tosecure long term leases at below market rates. The reality is that for many tenants the uncertainty of themarket results in short term leases and renewals taking place while they wait for a more confident economyto arrive.

NOTABLE ACTIVITYASINg TrANSACTIONS nant Address SF Product Submarketrist Throne Ministires 1730 Whitehead Road 31,500 Flex Woodlawnas Wilf 7243 Ambassador Road 27,726 Flex Woodlawnre Corporation 2275 Rolling Run Drive 21,818 Bulk WoodlawnS Media 11201 Dolfield Boulevard 20,483 Office/Warehouse Owings Millsrf Body Shop 6709 Whitestone Road 15,245 Flex Woodlawnblis 2275 Rolling Run Drive 11,471 Bulk WoodlawnILDINg SALES - INVESTMENTdress Size Price Price PSF Product Buyer Seller 431-11435 Cronhill Drive (2 Buildings) 38,779 $3,750,000 $96.70 Flex Hillendale Properties First Potomac RealILDINg SALES - USErdress Size Price Price PSF Product Buyer Seller 330 S. Dolfield Road 43,200 $2,600,000 $60.19 Office/Warehouse ASI Holdings, LLC Ambec, Inc.

0%

2%

4%

6%

8%10%

12%

14%

2010 2011 2012

Vacancy Rate

, , ,, , ,

-50

-40

-30-20

-10

0

10

20

30

40

50

60

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)


20%

43%37%

Bulk

Ofce/Warehouse

Flex

Asking Rents

Vacancy Rate

et Absorption

13

Construction



NDUSTrIAL MArKETaltimore County - eaSt

STATISTICS



New/Relet Vacant (SF) 2,438,302 1,514,373 1,664,368Sublease Vacant (SF) 54,300 31,883 0

Total Vacant (SF) 2,492,602 1,546,256 1,664,368



Vacancy Rate Sublease % 0.4% 0.3% 0%

Net Absorption (SF) (253,972) (345,741) (388,188)



2013 Planned Construction SF 42,000 0 0

FORECAST

MARKET OVERVIEW

The Industrial submarket is represented by more than 34.4 million square feet of space. Bulk product accounts for almost forty-two percent, and office/warehouse and flex product equally share the remaining twenty million square feet.The submarket saw significant negative absorption this year in all three sectors of an aggregate 988,000 square feet.

The Baltimore County East submarket was responsible for a very significant transaction that could serve as a catalystfor intense industrial development. The Sparrows Point Steel Mill and all associated neighboring properties were soldat bankruptcy auction by RG Steel – the latest in a series of owners of the mill since the original operator, BethlehemSteel Corporation, sought bankruptcy liquidation in 2001.

Sparrows Point accounts for more than 3,000 acres of land on a peninsula of the Chesapeake Bay. Untold hundredsof thousands of square feet of mills, office buildings, plants and warehouses configure the site now, but it has beendiscussed as a possible expansion area for the current Port of Baltimore. No doubt years and perhaps decades of environmental cleanup would be undertaken before any serious development could occur at Sparrows Point.

New ownership intends to liquidate the assets in whole or part if a new operator for the steel mills is not secured. Another auction in planned for early 2013.

Greenfield Partners bought a portfolio of assets from Corporate Office Properties Trust this year, mostly consistingof office product. However, one of the properties is 7941 Corporate Drive, a 58,000 square foot office/warehousebuilding with almost 50% office build-out that traded as part of the $162 million transaction. This property sits vacantand awaiting a user.

MARKET OUTLOOK

In early 2013, Chesapeake Real Estate Group, in association with Prudential, plans to deliver a 42,000 square footbuild-to-suit office/warehouse building that includes an option to purchase by the tenant. This building is the first inseveral years to be delivered at the Baltimore Crossroads@95 business community which also features product fromSt. John Properties, FRP Development Corporation, and First Industrial Realty Trust.

There were no building deliveries in 2012. Though continued economic stagnancy is expected to be the story lineonce again in this submarket, slow and steady recovery is possible in 2013. Moreover, both leasing and user/buyer activity seems to have increased in the fourth quarter of 2012 and we may likely see more buildings trade and leasesget recorded in the sub 50,000 square foot range in 2013. Baltimore County East does enjoy the benefit of significantexisting infrastructure and product availability for BRAC-related activity and contractors, as the closest pocket of flex,office/warehouse, and bulk product to Harford County and, more specifically, Aberdeen. Additionally, with upgrades tothe Port of Baltimore and a 50-foot berth, the largest ships in the world will be able to dock at Baltimore.

There is the potential for new construction of bulk space, but none is currently expected to deliver in 2013. Largechunks of space in all product classes exist throughout the submarket including more than 575,000 square feet inMarshfield Business Park at I-695 and MD Route 40 East. A bright spot here will be for healthy companies working withthe federal government and looking to expand. For those looking to lease, the product is plentiful and, in large part,modern and functional. 2013 will continue to be a great time to maintain costs while upgrading product.

NOTABLE ACTIVITYASINg TrANSACTIONSant Address SF ProductCorp (Renewal) 7001 Quad Avenue 115,000 Bulk

Claw Brewing Company 8901 Yellow Brick Road 91,000 Bulkndard Coffee (Renewal) 9331 Philadelphia Road 23,400 Office/WarehouseW 3 Harko Court 10,000 FlexILDINg SALES - INVESTMENTdress Size Price Price PSF Product Buyer Seller ous 3,150 Acres ± $72.5M n/a Bulk ILT/Hilco RG Steel1 Citation Road 157,000 $10,250,000 $65.37 Bulk IIT TA AssociatesILDINg SALES - USErdress Size Price Price PSF Product Buyer Seller 29 Philadelphia Road 18,169 $1,200,000 $66.05 Flex 10829 Philadelphia Rd LLC Allstate Sheet Metal15 Pulaski Highway 14,280 $630,000 $44.12 Office/Warehouse Crest Lock Co Bunting Door & Hardware Co., I3 pLANNED CONSTrUCTION

dress Size Product Asking Rent PSF Delivery Date Owner/Developer 05 Pocomoke Court 42,275 Bulk $6.95/NNN October 2013 Chesapeake

, , ,, , ,, , ,

-400

-200

0

200

400

600

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)


42%

29%

29%

Bulk

Ofce/Warehouse

Flex

Asking Rents

Vacancy Rate

14

Construction

et Absorption

Vacancy Rate

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2010 2011 2012



NDUSTrIAL MArKETBaltimore County - SoutHWeSt

FORECAST

MARKET OVERVIEW

Industrial market results for 2012 were a virtual repeat performance from 2011. Once again, bulkproduct was mostly in demand with positive absorption and downward trending vacancy, while bothoffice/warehouse and flex properties continued to experience stagnant rental rates and more than 20%vacancy in this product line. This represents among the most densely-developed areas for industrialproduct along the Baltimore Beltway. One of the reasons is that many occupants of facilities in theSBC distribute to both the Baltimore and Washington areas, but tend to do the preponderance of their business in the Baltimore metropolitan region. The SBC contains a diverse mix of industrial buildingsranging from older non-functional buildings inside the Beltway to modern industrial buildings built near I-95 and I-695. For the last two years in a row, overall product availability in the under 22’ clear ceilingrange has outstripped demand.

MARKET OUTLOOK

This submarket should make some modest gains in occupancy next year, as rental rates become moreaggressive and tenants and buyers see opportunities for upgrading their present space. We believebulk product will maintain its solid performance in this submarket, however both office/warehouse and

flex product have occupancy issues to deal with and it will likely see double digit vacancy rates for theforeseeable future. Landlords in this submarket will need to stay aggressive in order to attract the mostcredit worthy businesses to their properties. This market is still experiencing a fair amount of free rentin order to attract tenants. On the sale side, product versus demand is in balance and financially stronguser-buyers should benefit from continued low interest rates over the next twelve months.

NOTABLE ACTIVITYASINg TrANSACTIONSnant Address SF Productin Freight 3901 Benson Avenue 36,000 Bulkrtis Engine 3915 Benson Avenue 28,500 Bulkace International 3920 Vero Road 3,000 FlexILDINg SALES - INVESTMENTdress Size Price Price PSF Product Buyer Seller 34 Trident Court 519,000 $30,000,000 $58.35 Bulk IIT Preston Del Fuego LLCILDINg SALES - USErdress Size Price Price PSF Product Buyer Seller 65 Hollins Ferry Rd 101,750 $3,800,000 $37.35 Bulk Alberee R.E. Landsdowne Assoc LLC1 Washington Blvd 33,600 $1,350,000 $40.18 Flex Vehicles for Change DMH Comm’l Properties10 Marmenco Ct 21,000 $1,250,000 $59.52 Office/Warehouse JCS Enterprises TArt Litho

0%

2%

4%

6%

8%

10%

12%

14%

2010 2011 2012

Vacancy Rate

-400

-300

-200

-100

0

100

200

300

400

500

600

700

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)


39%

40%

21%

Bulk

Ofce/Warehouse

Flex

Construction

Asking Rents

et Absorption

15

STATISTICS



New/Relet Vacant (SF) 222,000 664,000 347,000Sublease Vacant (SF) 0 0 0

Total Vacant (SF) 222,000 664,000 347,000


Vacancy Rate Direct % 6.9% 20.8% 21%

Vacancy Rate Sublease % 0% 0% 0%

Net Absorption (SF) 150,000 (4,000) (31,000)




Vacancy Rate



STATISTICS



New/Relet Vacant (SF) 1,563,936 322,984 378,505Sublease Vacant (SF) 181,000 5,500 9,500

Total Vacant (SF) 1,744,936 328,484 388,005



Vacancy Rate Sublease % 1.3% 0.2% 0.3%

Net Absorption (SF) 622,931 (27,432) (79,352)


2012 Completed Construction SF 1,000,000 0 0


FORECAST

MARKET OVERVIEW

Harford County as an industrial market was born out of necessity. The original growth spurt can be traced backto the lack of available land to the south bordering Baltimore County and, to some degree, including BaltimoreCity. Large tracts of available sites (some with rail) along the busy I-95 corridor spurred both user andspeculative development of big box distribution facilities. These were typically high bay cross dock buildingsin excess of 300,000 square feet, each sporting familiar monikers such as McCormick & Company, GeneralElectric, Merry-Go-Round, Pier 1 Imports, Saks Fifth Avenue, The GAP and Rite-Aid. This, in turn, sparkedgrowth in the supportive mid-bay and flex-style industrial market to house service and support-type companies.Then along came the promise of BRAC and the growth of Aberdeen Proving Ground (APG) which has helpedfurther spike demand for flex and some mid-bay industrial product.

The strongest of the three disciplines in 2012 was the bulk distribution market where we experienced asignificant decline in vacancy from a high of 20.6% in 2010 to the current level of 12.6%. The bulk sector isin its second consecutive year of positive absorption. The flex and mid-bay office/warehouse markets havenot been quite as fortunate with continued trends in negative net absorption. There is plenty of blame to goaround, but many point to a combination of the recent election and fiscal cliff woes.

MARKET OUTLOOK

The future looks bright for those developers in the bulk industrial sector. The continued upward trendin demand and correlating uptick in rental rates could urge folks to think about new construction starts.Construction cranes on the horizon will certainly be a welcome sight. The coming year may not be so rosy for those closer to the government and military side of the business as looming budget cuts continue to cast a pallover the market, which has further impact on area housing and retail markets.

0%

5%

10%

15%

20%

25%

2010 2011 2012

Vacancy Rate

-400

-200

0

200

400

600

800

2010 2011 2012

T h o u s a n d s

Net Absorption (SF)


69%

15%

16%

Bulk

Ofce/Warehouse

Flex

Asking Rents

Vacancy Rate

et Absorption

16

NDUSTrIAL MArKETHarford County

Construction

NOTABLE ACTIVITYEASINg TrANSACTIONSenant Address SF Productroctor & Gamble 4608 Appliance Drive 262,767 Bulkmith Detection 2203 Lakeside Blvd. 99,100 BulkruAire 151 Bata Blvd. 79,385 Bulkcore 2201 Lakeside Blvd. 40,200 Bulkouse of Cards 1305 Continental Drive 36,640 Bulkfoam 121 Bata Blvd. 16,394 Bulkhe Roof Center 1042 Hardees Drive. 16,000 BulkUILDINg SALES - INVESTMENTddress Size Price Price PSF Buyer Seller 21-151 Bata Boulevard 599,109 $31,000,000 $51.91 Exeter Property Group TA Associates Realty109 Columbia Park Drive 107,070 $5,800,000 $54.17 Industrial Income Trust TA Associates RealtyUILDINg SALES - USErddress Size Price Price PSF Buyer Seller Mercedes Drive 187,990 $6,900,000 $36.70 TIC Gums, Inc. URDANG

01 S. Juniata Street 16,707 $655,000 $39.21 Thymly Products Humphrey Management

202 Pauls Lane 10,000 $700,000 $70.00 Auston LLC K&B Realty Inc



REsIDENtIAl lAND

17

he report from the trenches is that the home building market in Marylandin recovery mode. The extent of that recovery depends entirely on theunty in question. Sales in Montgomery, Howard, and parts of Anne Arundele doing well enough to whet the appetites of builders and developers aliker new land opportunities. The same cannot be said for those few builders

orking in tertiary markets such as Cecil, Washington, or Dorchester Counties,here sales for single-family homes in the very low $200s are still difcult tome by. In the mid-level markets of Baltimore, Prince George’s, Charles, andederick Counties, builders are selling moderately priced single-family homestypically priced below $450K – with all the bells and whistles; but sales areard pressed to maintain a consistent pace of two or three homes per month.

s one builder explained to me, “I’ll sell two houses a month in a givenmmunity. Then sales will drop off the cliff, only to begin again three monthser at two sales a month for another couple of months before they stop again.”the mid-level markets, builders are forced to coax buyers into making themmitment to buy by sweetening the deal with free upgrades, incentives, and

elp with closing costs.

he real news in residential land this year was not which builders sold theost homes in Maryland (for the umpteenth time, Ryan Homes), or whichilders went out of business (none that comes to mind, after the extreme

erd-culling of 2007 and 2008). No, the real news this year is how the state of aryland has continued to make the already difcult and expensive processland development into something akin to winning an Olympic gold medal:ry challenging, very expensive, and given the odds, not very likely withoutot of help.

used to be that if a small investor wanted to make a lot of money for tirement, she simply went twenty miles out of town and bought a large parcelground off the main road and waited for development to reach her property.

nfortunately, that method of retirement planning no longer works. Constantly-anging regulations and restrictions on development and the ever-presentreat of community opposition all combine to result in down-zoning for thebject property. In today’s climate, holding land with an eye toward future

evelopment has become a highly-risky investment.

storically, the regulations governing land development have come under therisdiction of local government – either on a county or incorporated town levelwith only limited input from the state. Under the O’Malley administration,pious regulations and state bureaucracy have been heaped on anyonetempting to develop or build nearly anything in Maryland. O’Malley claimsat the regulations are his attempt to help save the Chesapeake Bay; however ave to wonder if regulating the land development and construction industrynear death is the best way to save our bay. . .or if it is just a way to courteral donors for a 2016 presidential run.

ong known as a difcult and expensive state in which to do business,aryland has raised the bar to the point that it will soon be impossible tonstruct a moderately-priced home, inexpensive ofce building, or value-ented shopping center and still comply with the myriad of new land use

gulations. In fact, between the fees and regulations governing storm water anagement, various development impact fees imposed by counties to cover olice and re protection, new schools and expensive offsite improvementes, we are seeing, for the rst time, developers turning down otherwise goodevelopable land because they simply cannot make their numbers work.

ra tier main

April of 2012, the Maryland House of Representatives approved a landeservation bill, which will preserve rural land but limit how farmers/land

wner may handle disposition of their land. The bill passed with a vote of 9345.

he bill requires county governments to establish a four-tier system for

ptic use, aimed at protecting agricultural lands and forests. Under the new

regulations, local jurisdictions were instructed to draw their own tier mapsto the following guidelines:

• Tier-one areas are served by local water and sewer systems andgrowth is essentially maxed out.

• Tier-two areas are planned growth areas where water and sewer extended from existing municipal water systems.• Tier-three is a mix of areas that allow septic use and also prohibit

subdivisions on septic in designated areas.• Tier-four is designated as protected forest lands under the bill.

The bill limits the size of major developments requiring septic systemit discourages rural development needing septic systems in favor ofdevelopment, which can take advantage of public sewer systems.

Farmers are rightfully concerned with the development restrictions of thregulations, since the regulations reduce the value of land and therefore the equity they can borrow against to buy supplies and equipment.

The new bill remains unpopular with farmers, rural landowners, and devealike.

Aain r grw

Just when developers thought that Maryland could not possibly implemeadditional rules and regulations for development, the Maryland Departmthe Environment is set to launch Allocations for Growth (AfG), an offset/tpolicy designed to ensure the quantication and mitigation of nutrient poThe program, expected to begin on January 1, 2014, requires developerbuilders, and others to offset 100% of the post-development load from eland development project. The policy not only requires complete and fuof all nutrient pollutant loads from new projects, but existing developmenwhere a building is altered (encompassing both the construction of an adas well as the development of additional units or square footage of otherundeveloped land). The Maryland Department of the Environment (MDEbe creating regulations that dene how these pollutant loads will be calc

as well as setting regulations governing how many offset credits developwill be required to purchase in order to fully offset the loads generated foproject.

Though the MDE will be setting the regulations as to how many offset crwill be required, they will not be selling offset credits, rather they will allodevelopers to nd willing landowners within the same county or watersheto sell offset credits for nitrogen and phosphorus. The program as propowill require the buyer to nd a willing seller who is agreeable to “offset launder the regulations to be imposed by the MDE. The word from the treis that – beginning in 2014 – this requirement could add as much as $40to the cost of a single family home. The regulations, which are currently work-in-progress will allow for one credit to equal to one pound of nitrogphosphorus.

We still view land ownership in Maryland as a good investment. It isimperative that landowners seeking to sell their landholdings engage aknowledgeable land consultant to represent them in the complex transacthat is land development in Maryland. As many of you know, my team arepresent only land sellers (never home builders or land developers) in tsale of land. Because our real estate practice is dedicated to representithe seller, we are able to maximize the seller’s return with no conict of interest or divided loyalty. Obtaining the highest price and best terms folandholdings is our only objective.



NVEstmENt oVERVIEW

The investment sales market in 2012 carried forward the themesof 2011. The volume of institutional investment sales this year continues to increase and has exceeded the level seen in theast market peak of 2007. Capitalization rates have continued to

fall and are approaching 2007 level again.

As an example, Institutional buyers of industrial product havedriven the price high quality bulk warehouse buildings to recordhigh levels, with a few instances of buildings trading north of $100 per square foot to investors having occurred.

Low interest rates remain the main driver of values. Institutionalnvestors in particular are willing to tolerate very low returnson the highest quality real estate, and even tolerate the risk of falling rental rates and rising vacancy rates, because often the“worst case” scenario is for them better than the alternative (i.e.eaving their cash “in the bank). Private investors depend on

everage and are more reticent about taking those risks.

Along with those institutional buyers, owner-occupants areproving to be excellent purchasers, being drawn into the marketby very attractive bank financing with rates often down intothe sub-5% range. Unfortunately the inventory of high qualitybuildings suitable for owner-occupancy is limitied in our market.

n contrast with the institutional l and owner occupant markets,smaller investment opportunities that are stable and well leasedare not trading as frequently as in 2006-2007 and early. Thebulk of these “private market” investment sales (defined hereast sub-$10 million sales) have been to users or have involvedsome sort of distress.

Conduit financing fueled a high volume of private marketsales before the market turndown in late 2008. The lack of that attractive non-recourse financing today is dampening thevolume of sales of stable mid-market assets that normally sellto private buyers, though we are projecting an incrementalncrease in the volume of sales of these types of assets in 2012.

That said, mid-market assets with an element to distress tothem (e.g. bank owned property, note sales, short sales) aregenerating tremendous and sometimes irrational interest frombuyers. For better or for worse (depending on where you stand)there are few troubled assets transacting in our market. Theres a bottleneck of sorts from lenders. Banks are slow to write

assets down to market to accept losses. The third party spservices that manage and dispose of troubled secur(CMBS) loans are overwhelmed and are in some cases tayears to take back and eventually sell distressed assets.

Across the board, investor buyers have become more pessimabout leasing prospects in 2013. Buyers are projecting rrates to remain flat or decline for several years, andexpecting vacant space to take longer to lease. Geninvestors are projecting rental rate growth and an increaleasing velocity only they are expecting that trend to beginto three years from now.

The most sought after product types include bulk warehoinstitutional quality office in core markets such as the DistrColumbia and affluent inside-the-Beltway suburbs, alonggrocery anchored retail and multifamily.

Most out of favor today is suburban office and flex proInvestors see more downside risk in terms of rental and vacancy here with a likely contraction in the governcoming. We see an interesting contrarian play here in buthese assets in locations that have at least some constrto new development, are near executive housing, and wthey can be bought at a dramatic discount to replacement Markets to avoidare those that have seen very little hisrental rate growth over the past several decades.

The volume of new properties coming to market has droppthe second half of the year. We speculate this has someto do with the ongoing negotiations over the so-called “cliff.” Unfortunately a package of tax increases and govern

spending cuts will not serve the economy in the WashinBaltimore area well. Sellers recognize this risk and are wato see at least a short term resolution to the matter before tassets to the market.

18

0%

1%

2%

3%4%

5%

6%

7%

8%

9%

10%

2007 2008 2009 2010 2011 2012 YTD

P e

r c e n t a g e

Average Capitalization Rate

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 2012 YTD

N u m b e r o f

C o m m e r c i a l R . E .

S a l e s

Commercial Real Estate Sales - Baltimore Metropolitan Area

Under $10 Million(Private Market)

Over $10 Million

(Institutional)



Build on the owe o

ou netwok.TM

Paragon Commercial Property

Management, a subsidiary of KLNB,

LLC, is a full-service provider of

commercial real estate property and

asset management services.

Paragon takes a strong “hands on” philosophy to managing its

properties. Engineers inspect each building regularly and meetconstantly with its tenants and vendors. Paragon is building an

organization based on a reputation for superior service and invites

you to contact any of the tenants or building owners that it serves.

Paragon employs six roving maintenance engineers who perform

a multitude of services including all basic mechanical, electrical,

plumbing and janitorial work. As a result, in many circumstances

we are able to provide owners faster and less-expensive service

than if a contractor had been called.

Paragon can deliver the following variety of services:

• Property and asset management

for ofce, retail, industrial

and corporate facilities projects.

• Provide on-site management and technical personn

• Provide 24-hour on-call service.

• Maintain comprehensive budget information.• Produce accurate and timely monthly reports.

• Develop a comprehensive summary of all equipmen

and systems located at your property.

• Design a complete preventive maintenance program

• Provide a comprehensive lease administration progr

For additional information please go to: www.paragoncpm.co

The CCIM movement began more than 40 years ago with commercial real estate practitioners who wanted to elevate

business practices through focused education and networking opportunities. Still today, education and networking re

the cornerstones of the CCIM designation and the reason for its success. The CCIM Institute confers the CCIM designa

and is an afliate of the National Association of REALTORS® (NAR). With more than 19,000 members in 33 countries

61 chapters worldwide, the CCIM Institute has emerged as a truly global organization.

Brokerage Services• Tenant/Landlord Representation• Buyer/Seller Representation• Sales/Leasing/Subleasing• Portfolio Marketing• Market Reports & Opinions of Value• Site Selection Analysis• Market Research/Mapping/Demos

Financial & Investment Services

• Investment Acquisitions & Sales

• Mortgage Brokerage

• Structured Lease Finance

• 1031 Exchange Services

On-Line Services

• REALTrac™ Online

• Transaction Management

• NAIDirect.com

• Surplus Property Hosting/Marketing

• Market Research & News

• Demographic/Mapping Services

• LoopNet

• CoStar Property

• Builder Info Tools™

®

®

OUr SErVICES

Lease Consulting Services• Lease Auditing/Compliance• Lease Abstracting• Lease Databases & Administration• Lease Consulting

Management Services

• Property & Asset Management

The SOCIETY OF INDUSTRIAL AND OFFICE REALTORS® is one of the leading professional commercial and indus

real estate associations. With more than 3,000 members in more than 580 cities in 26 countries, SIOR represents todmost knowledgeable, experienced, and successful commercial real estate brokerage specialists. SIOR is dedicated to

practice and maintenance of the highest professional and ethical standards. SIOR maintains a commitment to busi

and industry by providing outstanding professional services, publications, and educational programs.

19




A division of KLNB, founded in 1968.

Investment OfferIng

MEADOWS BUSINESS PARK A RETAIL, OFFICE AND INDUSTRIAL PORTFOLIOBALTIMORE, MARYLAND

Although NAI KLNB makes every effort to ensure the accuracy and

eliability of the data contained herein, NAI KLNB makes no guarantee,

epresentation or warranty regarding the quality, accuracy, timeliness or

ompleteness of the data in this market report.

THe

NAI KLNB

Team

* Denotes principal of rm

Established in 1968, KLNB, Inc. is a ull-service commercreal estate frm oering sales, leasing, development and restate investment services. The company employs more th80 real estate proessionals, including 35 principals.

In 2012, NAI KLNB reported volume o over $1.27 billion on 989 separate real estate transactions in the

leasing and selling o industrial, ofce, land and retail product. The ull-service brokerage frm operates

Maryland ofces in Towson and Columbia, as well as Vienna and Brambleton, Virginia, and Washington,D.C. KLNB is the mid-Atlantic representative o NAI, a network o real estate service providers serving

more than 200 markets worldwide. KLNB represents NAI with a ull range o brokerage, fnancial and

investment services. In the Baltimore ofce and industrial market, the NAI KLNB team includes:

b/W coRRIDoR6011 Univesity Boulevad

Suite 350

Ellicott City, Mayland 21043

(410) 290.1110

fax: (410) 290.0723

tYsoNs coRNER8027 Leesbu pike

Suite 300

Vienna, Viinia 22182

(703) 288.4000

fax: (703) 288.2999

bAltImoRE/toWsoN100 West road

Suite 505

Towson, Mayland 21204

(410) 321.0100

fax: (410) 321.0129

bRAmblEtoN42395 ryan road

Suite 200

Ashbun, Viinia 20148

(703) 722.2700

fax: (703) 722.2730

WAshINgtoN Dc

5225 Wisconsin Ave., N.W.

Suite 600

Washinton, DC 20015

(202) 375.7500

fax: (202) 237.9850

www.naiklnb.co

Michael T. MullOfce/Industrial

[email protected]

Todd R. EvansOfce/Industrial

[email protected]

Stephen J. Ferrandi*Land Sales

[email protected]

pARAgoN commERcIAl

pRopERtY mANAgEmENt

60 West Steet 1916 Wilson Boulevad

Suite 204 Suite 306

Annaolis, MD 21401 Alinton, VA 22201

(410) 280.1450 (703) 812.0334

fax: (410) 280.1451 fax: (703) 812.9002

James V. Caronna, SIOR*Ofce/Industrial

443.632.2070 [email protected]

Peter I. Dudley*Ofce/Industrial

[email protected]

Christopher B. KubleInvestmen

443.5ckubler@kl

Walter L. Patton, SIOR*Ofce/Industrial

[email protected]

Joseph P. Nolan, SIOR*Ofce/Industrial

443.632.2065 [email protected]

J. William Miller, SIOR*Ofce/Industrial

[email protected]

Timothy G. GardnerOfce/Industrial

[email protected]

2012 end of year office and industrial market report

Documents