Progress is slow in the 62.8-million-square-foot Baltimore general purpose, multi-tenant office market, in part due to the ongoing development of new space. Net absorption was strong at 386,000 square feet in the second quarter of 2012, with more than 300,000 in Class A properties. But four suburban properties with 210,000 square feet completed construction, leaving nearly 400,000 square feet under construction. The vacancy rate fell just 40 basis points to 17.2%, the same level as a year earlier. The rate was unchanged in July.
Reis predicts the rate will fall to 17.0% at the end of 2012, and then descend more rapidly as annual net absorption ranges from 1.36- to 1.56- million square feet per year. The expected net absorption for 2012 is about 1 million square feet, with a total of 630,000 square feet of new space added. Slowing from the rapid pace of 1998 to 2011, new supply is forecast at 600,000 to 900,000 square feet per year. The vacancy rate is forecast to fall to 12.1% at year-end 2016.
Rent continued to edge up during the second quarter. The average asking rent increased 0.2% to $23.40 psf and the average effective rent rose 0.3% to $18.88 psf, bringing the year-over-year gains to 1.3% and 1.7%, respectively. There was little change in July, and increases of just 1.1% asking and 1.8% effective are forecast for all of 2012. Reis predicts rent gains will improve as the vacancy rate falls, with the effective average rising nearly 3.0% in 2013 and 5.0% in 2016.
Cushman & Wakefield reports an overall vacancy rate of 14.7% and an overall asking rent of $23.66 psf for metro Baltimore. A flight to quality is underway in the market according to this source.