April, 2011

1st Quarter 2011 Market Review

The modest economic recovery continues to favorably impact commercial real estate. That impact is evidenced by increasing sales and leasing transactions and stabilization in leasing rates and values. On a national basis, there is a significant disparity among different geographic markets as to the strength of these positive trends. Among its strongest markets are Washington, DC, New York, Los Angeles, Boston and San Francisco. The worst 5 performing markets in the US are Phoenix, Detroit, Wilmington, DE, Trenton, NJ and Atlanta.

Locally, in the Washington Metropolitan Area, office vacancy rates stood at 13.1% at the end of Q1 2011. Blended average rental rates across class A, B, & C property types are at $33.78 per square foot. The vacancy rate of 13.1% is just slightly above the vacancy rate for 4 Q 2011 which was 13%.

The average vacancy rate for retail property was 5% for Q1 2011. That includes traditional shopping centers, power/big box centers and specialty retail. Traditional shopping centers had the highest vacancy at 7.4 % with specialty retail the lowest at 1.5%.

The vacancy rate for the industrial property sector in the Washington, DC Metro Area was 12.8% at the end of Q1 2011. This was .1% higher than the previous quarter. Separating out the “flex” segment of the industrial market, the flex vacancy rate stood at 15.7%, up .7% over the prior quarter. The average quoted rental rate was at $17.82 per square foot.

The vacancy rates for all the property types (i.e. office, retail, industrial) trends higher the farther you move geographically away from Washington, DC. For example, in Maryland, Frederick County and Prince George’s County have vacancy rates of 24.1% and 27.5% respectively. In Virginia, Woodbridge and the Dulles Corridor have vacancy rates of 32.6% and 16.1% respectively.

Given the foregoing, despite moderate positive trends, market fundamentals (i.e. vacancy rates, rental concessions, and overall demand for space) represent the worst statistical picture in 17 years. Of all the property types, retail is faring the best.

Near Term Expectations:

Within the Washington Metro Area, Tyler-Donegan expects stability to be sustained with regard to vacancy rates, rental rates and property values. Consistent with that, we do not expect any meaningful appreciation in rental rates or property values over the balance of the year. The improving economy evidenced by rising GDP, lower unemployment, and a rising stock market over the last 24+ months is contributing to a very fragile stability in commercial real estate.

Nevertheless, that stability is undermined by the existence of billions of dollars of overleveraged commercial real estate which will need to be refinanced or sold as distressed assets over the next few years. Other factors which will prolong a recovery in the CRE market include rising interest rates, continued weakness in the housing market and continued weakness in unemployment.

Beach Brothers Printing

TD, in cooperation with Rollins Real Estate leased roughly 6,000 square feet of office and shop space to Beach Brothers Printing at 2502 Urbana Pike in Urbana, MD. TD represented the landlord (2502 Urbana Pike, LLC) and Frank Landol of Rollins represented the tenant (Beach Brothers, LLC). Beach Brothers has been in business for over 35 years and relocated from Rockville, MD.

Madison Avenue Signs

TD (Tim Shanklin, Agent) represented Madison Avenue Signs in the renegotiating and expansion of their leased premises in Columbia, MD. Madison expanded from 10,000 square feet to 15,000 square feet at the Oakland Ridge Business Center. Merritt Properties is the owner/landlord of the building.

Someone With

Joe Donegan represented Someone With in the leasing of 1800 square feet for 3 years at 44 N. Market St. in Frederick City. This well known property which currently houses Isabella’s on the ground level is owned by Boehman and Weigelt, LLC. Someone With will provide an online and catalog resource for cancer patients. It will provide access to products such as alternative supplements and therapies, a book store, travel excursions and other preventative, in-therapy and post procedure products and services clients might need for their personal fight with cancer.

Deep Creek Commercial Land Sales

In representing the Weaver Group, LLC, TD sold off 4.5 acres out of 36 commercial/mixed use acres on MD 219 near Deep Creek Lake in McHenry, MD. The purchaser is planning to develop a neighborhood retail center serving the Deep Creek Lake resort community. Deep Creek, like many predominantly second home markets, has experienced a softer market as compared to the more urban markets. However, consistent with the recovering economy, this market is starting to re-establish some momentum.

ReStore Retail Center

Brian Duncan assisted Habitat for Humanity in the search for a new retail center for its ReStore Retail Center. The center was located in 8,000 SF at 1103 East Patrick Street. Expansion was necessary in order to increase sales of home improvement items which, in part, funds the local Habitat for Humanity efforts to provide affordable housing. After an extensive analysis of available locations, Brian and the Executive Director for Habitat, Ron Cramer, narrowed it down to two properties. After working with Sean Kirby on a lease agreement for 20,500 square feet at 622 North Market as well as the City of Frederick on a substitution for non-conforming use, the volunteers began moving the merchandise to the new store in anticipation of its grand opening on April 30th. In addition, Brian is assisting the owner of the East Patrick space in leasing this space to retail and/or office users.