Demand for suburban Maryland office space continued to weaken during the second quarter, as the loss of major tenants in Prince George’s County and new construction drove a negative absorption rate.
The market appeared especially weak relative to Washington, D.C., and Northern Virginia, which showed positive absorption numbers despite modest growth in demand. But the entire region seems headed for a period of higher vacancies and possibly weaker rents as many large buildings are completed in the next two years.
‘‘With the exception of suburban Maryland, the underlying economy continues to fuel growth in office demand and we need to keep in mind that the basic fundamentals are strong,” said Rob Hartley, research manager for CB Richard Ellis’ Washington-Baltimore region. ‘‘However, uncertainty remains and everyone is watching the amount of new space expected to deliver in the next two years throughout the region.”
He noted the loss of 3,500 jobs in the Maryland suburbs’ professional and business services and financial services sectors, which ‘‘represents approximately 600,000- to 700,000-square-foot loss in demand.
Jones Lang LaSalle reported that the ‘‘current economic slowdown has caused tenants to be more cautious in their need for space, causing demand to ease” in Montgomery, Prince George’s and Frederick counties. Its report noted that ‘‘tenants have been choosing to stay in their current locations, either signing renewals or contracting their square footage needs, as opposed to expanding and moving into new space.”
And in another worrisome sign, tenants are dumping more space on the sublease market, even in tight areas such as Silver Spring, Bethesda and Chevy Chase, Jones Lang Lasalle said.
The trend includes Capital Source, which put all of its 160,000 square feet on the sublease market at 5404 Wisconsin Ave., the marquee office building rising in Chevy Chase; American Capital Strategies, which put 63,000 square feet on the market in Bethesda; and Ferris, Baker, Watts, for which Jones Lang LaSalle had planned to extend its Silver Spring lease of 23,000 square feet for 10 years, but instead shut down operations and put all Its space up for sublease.
The market report issued by Delta Associates and Transwestern described ‘‘a blend of two submarkets” over the past six months in the Maryland suburbs, with the loss of major tenants creating a negative absorption of 441,000 square feet in Prince George’s that wiped out Montgomery’s positive 279,000 square feet. Among the large companies giving up space were Raytheon, which vacated 232,000 square feet in Upper Marlboro, Hewlett-Packard, which vacated 167,000 square feet in Greenbelt, and Computer Science Corp., which vacated 80,000 square feet in Landover.
But the report showed that in the second quarter, Montgomery’s absorption rate fared worse than Prince George’s, with negative 154,000 square feet and negative 81,000 square feet, respectively. The negative numbers should grow larger over the next two years as new buildings are complete.
Delta and Transwestern predicted that new supply will outpace demand by 1.2 million square feet, as suburban Maryland adds 3.3 million square feet to the inventory over the next 24 months. But the report concluded that ‘‘we expect investors to continue seeking assets in Suburban Maryland over the long term because of steady and predictable performance.”
The report said that rents should rise 0.5 percent to 1.5 percent over the next 12 months, even though overall vacancy in the market is forecast to climb to 12.5 percent over the next two years, from 11.6 percent today.
Investors buy CareFirstheadquarters in Owings Mills
A pair of Boston investment funds bought the CareFirst headquarters in Owings Mills for $95 million, according to Eaton Vance Management’s real estate investment group, which manages the independent funds.
The buyers, which were not disclosed, acquired 10455 and 10453 Mill Run Circle, where CareFirst BlueCross BlueShield renewed its lease last year through 2018. The two-building office complex is adjacent to Interstate 795 and within close proximity to other major traffic arteries, providing easy access within the Baltimore-Washington corridor.
‘‘Over the past 24 months, our funds have acquired interests in over $850 million of institutional-grade property in the Baltimore-Washington area, and we are pleased to further expand our presence in the Mid-Atlantic region with this investment.” said K.C. Swartzel, director of acquisitions and Dispositions for Eaton Vance Management’s real estate investment group, in a statement. ‘‘The combination of attractive cash flow, favorable location, and long-term tenancy make this transaction an excellent fit with our overall investment strategy. Despite the currently unsettled national real estate market, we remain interested in acquiring additional long-term net-leased office, retail, and industrial properties throughout the United States.”
Jessup warehouse spacesells for $40 million
Exeter Property Group of Plymouth Meeting, Pa., bought a 612,900-square-foot distribution center in Jessup for $40 million, according to CB Richard Ellis, which arranged the sale for the seller.
The property, one of the biggest industrial warehouses in the Baltimore-Washington corridor, is 30 percent leased, with Iron Mountain occupying 178,000 square feet. The building, at 7605 Dorsey Run Road, was completed in 2006.
‘‘We find the BWI industrial corridor to be highly attractive both for the short and longer term,” said Scott Dougherty, mid-Atlantic region investment officer at Exeter, in a statement. ‘‘This area has solid demand drivers that include strong population and income growth, increasing federal procurement spending, and BRAC-related jobs.”
Forrester wins contractfor $36M D.C. school
Forrester Construction Co.’s Education Group has been awarded the $36 million Walker Jones School project in Northwest Washington, D.C.
The project will include the demolition of two existing schools - Terrell Junior High School and Walker Jones Elementary School - and construction of a new 100,000-square-foot, pre-kindergarten through eighth grade school; a 5,000-square-foot public library; and a 20,000-square-foot recreation center. All three components will be housed in one new, four-story, U-shaped building.
This will be the first major project to be implemented as part of Washington’s Northwest One Master Plan. The new facility will be jointly managed by the school system, parks department and public library.
St. John Propertiesplans Frederick park
St. John Properties of Baltimore plans a new 11-building, 413,000-square-foot flex-research and development complex on a 104-acre parcel on Buckeystown Pike, just south of Frederick.
The project is the company’s third venture in Frederick County after Center@Monocacy and Riverside Technology Park.The company plans to break ground on the first building this year, with delivery expected next winter.
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