The Seeds Have Been Sown

By Owen Rouse Jr.



"How's the market?" you ask. Based on the health of the Howard County commercial real estate market vs. our national counterpart, the seeds of a local recovery have been sown and will begin to germinate over the remaining 100+ business days in the year.



The Facts

1. Growth is evident in specific industry segments - defense, early stage homeland security-related government contracting, the consumer mortgage food chain (originators, wholesalers, aggregators), medical related industries and privatized government. Specific leasing activity can be backtracked to these industries:

- Defense: Northrop Grumman

- Contracting: Johns Hopkins Applied Physics Lab (expansion)

- Consumer Mortgage: Chesapeake Mortgage and Dell Franklin Financial (new)

- Medical: Howard County Hospital (expansion)

- Privatized Government: Telesis and Beamhit (new and expansion)

2. Despite national unemployment rates of 6.1%, Howard County is still tracking an unemployment rate of 2.7%. The Baltimore Metropolitan area was at 4.5% for April. This bodes well for the local economy.

3. Leasing is occurring with some specific inducements to tenants, but they are only offered on a deal-by-deal basis by financially capable owners. Good for landlords, not so good for tenants.

4. Sublease space has been oversold as true competition for new space; few if any deals have actually been lost to a sublease opportunity. Good for everyone.

Other evidence of the seeds of future growth can be found in the success of various real estate projects that, despite their slow initial leasing period, are now on their way to becoming stellar performers in the market:

- Liberty Place: 124,000 square feet in three (soon to be four) single-story buildings

- Columbia Corporate Park 100 (Merritt): a 125,000-square-foot mid-rise, plus a second building scheduled for a Spring '04 delivery

- Columbia Lakeside: a six-story Class A at Town Center

The effect of the success of Anne Arundel County's National Business Park can be felt in Howard County. Corporate Office Properties continues to play "chess" to accommodate the needs of NBP tenants by moving selected firms in their portfolio to buildings within Howard County. They are clearly adept at accommodating the needs of their tenants as those tenants outgrow space.



Predictions

Based on the trend of business thus far in 2003, I would have the following predictions for the next six months of the year:

1. Top tier buildings are almost full, which will solidify Class A rental rates and, in some cases, exert a slight upward pressure.

2. Leasing momentum is building in previously slow projects, which shortens a tenant's decision-making timeframe compared to a year ago.

3. Continued in-migration of other firms will be somewhat of a wild card with respect to new business entering the county.

4. Sublease space will continue its natural evaporation.

The seeds of growth have been sown in the office and flex market of Howard County. Companies and residents should continue to expect the county to grow and prosper as the burgeoning Washington, D.C., suburbs grow north and the Baltimore Metropolitan area grows south. The county's effective road system that allows commuters to cross the area will continue to play an important role in that growth. Dial into this equation a prized school system, a user-friendly local government and well-conceived office parks, and your have the makings of a near term recovery. The return of a balance between supply and demand will sprout, take root and flourish by the second quarter of 2004.



Owen Rouse Jr. oversees the Investment Services and Brokerage operations at Manekin, LLC, a full-service commercial real estate firm headquartered in Columbia. He can be reached at 410-290-1400 or visit www.manekin.com.