The region's commercial real estate market weakened further over the past three months as the increase in vacancies continued for the eighth straight quarter in Montgomery and Prince George's counties, according to the most recent surveys.
The story is similar in the Baltimore area, where Cushman & Wakefield reports that the overall vacancy rate now stands at 14.5 percent.
Cassidy & Pinkard said it will take some time for the entire Washington, D.C. region to absorb the excess commercial space it has accumulated during the recent building boom, noting that "DC metro has more new space delivering over the next two years than any market in the country."
The company said the vacancy rate in Maryland's Washington suburbs will exceed 14.5 percent for the next six months, with 898,000 square feet of vacant space scheduled to deliver by year's end. But "long-term prospects are far better as federal growth should stimulate office demand throughout Montgomery and Prince George's counties."
There already are some signs of strength with big leases reported at a few new marquee buildings in Montgomery, and the Baltimore-Washington corridor sub-market of Howard and Anne Arundel counties poised to benefit from defense job transfers association with the Pentagon's Base Realignment and Closure program.
The two Washington suburban counties showed a combined negative absorption rate of 545,977 square feet for the first six months of 2009, according to the Cushman report. Vacancies hit 15 percent in Montgomery and reached a 13-year high of 21 percent in Prince George's.
"The second half of 2009 will see continuing declines in rental rates as both landlords and sub-landlords race each other to lure tenants to their buildings," Andrew Masters, executive director of Cushman's Bethesda office, said in the report. "With large blocks of space expected to inch up through year-end due to new completions, rent values may erode another 5 percent to 10 percent before we begin to see a turnaround in the market."
The weakest submarkets are in Greenbelt, which, with a vacancy rate of 28.5 percent, has not recovered from the recent loss of some large tenants, and Bowie, with a vacancy rate of 29.7 percent, which has seen 155,000 square feet of new construction or renovation this year.
Silver Spring and North Rockville are showing signs of weak demand, with vacancy rates of 19.3 percent and 18.5 percent, respectively. But the North Bethesda submarket remains stronger, with a vacancy rate of 9.8 percent.
Another bright point is Foulger-Pratt's Park Potomac Building E in Rockville, which has signed up three large tenants. The 174,000-square-foot building has only 65,828 square feet still available with delivery expected this month, broker Meany & Oliver of Arlington, Va., reported in its presentation in June at the Greater Bethesda-Chevy Chase Chamber of Commerce's seventh annual Real Estate Update.
Baltimore has space glut, but BRAC boosts outlook
In the Baltimore region, the city's central business district has been on a roller coaster for two years and the overall vacancy rate stands at 12.8 percent, the highest since the fourth quarter of 2008, Cushman reported. It will take a while for conditions to improve in the submarket, with more than 1 million square feet of space under construction in the city, mostly in the southeastern part of the Inner Harbor.
Demand has not kept pace with recent construction in Anne Arundel and Howard counties, where Cushman shows overall vacancy rates of 16.9 percent and 17.2 percent, respectively. But there are signs of activity, with both counties showing positive absorption this year and that is expected to continue with an influx of defense jobs at Fort Meade under the Pentagon's reorganization program.
Opus Ease files for bankruptcy
Opus East of Rockville, whose legal battle over construction of a federal building in College Park has thrown the company into a financial tailspin, filed for Chapter 7 bankruptcy protection Wednesday, which will allow it to liquidate its portfolio without a fire sale of assets.
The company's parent, Opus Corp. of Minneapolis, said that Opus West also anticipates filing a voluntary bankruptcy petition early this month under Chapter 11, which allows for reorganization without a liquidation of the firm.
Mark Rauenhorst, chairman and CEO of Opus Corp., said the bankruptcy filings result from steep and pervasive declines in commercial real estate values and persistently difficult credit market conditions.
"Declining real estate values and tight credit markets continue to impede the refinancing of assets and restructuring of lending agreements," he said. "We are taking the actions announced today to liquidate Opus East's portfolio and allow for the restructuring of Opus West's operations.
Opus East listed assets of $238 million and debt of $501.8 million in its filing with U.S. Bankruptcy Court in Wilmington, Del. Opus South Corp. in Atlanta filed for Chapter 11 reorganization in April.
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