Delta Associates

Market Information: Baltimore

Economy

Office

Industrial

Multifamily

Economy: First Quarter 2008

Economic Expansion Continues, But At A Moderating Rate; Unemployment Rate Edges Down

The Baltimore metro area economy expanded over the past year, but at a moderating pace. Although new jobs were added during the 12 months ending January 2008, primarily in the Education/Health sector, the rate of growth slowed to 0.6% over the past year, compared to 1.6% and 1.0% in 2006 and 2007, respectively. The unemployment rate edged down during the past 12 months and remains below the national unemployment rate. Overall, the Baltimore area economy is expected to remain stable in the near-term.

The Baltimore metro area added 7,800 new payroll positions during the 12 months ending January 2008, compared to the 15-year average of 15,300 per annum. The Baltimore suburbs added 85% of the total new payroll jobs in the metro area. The Education/Health and Professional/Business Services sectors boosted Baltimore City’s job growth over the past 12 months.

The Baltimore area unemployment rate was 4.0% in January 2008, down from 4.5% one year prior. The current rate is the lowest among comparable metro areas and compares favorably to the national rate of 4.9% in January 2008.

The Federal and State government represents 18.1% of the Baltimore metro area’s gross regional product (GRP). The financial and professional services core industry is a comparable size. Baltimore’s GRP in 2007 exceeded $130 billion, a growth of 2.5% from 2006. We expect similar growth in 2008.

Office: First Quarter 2008

Absorption Sluggish; Rents Neutral; Vacancy Edging Up

The Baltimore metro area office market experienced slowing conditions during the 1st quarter of 2008. Absorption was soft and vacancy edged up over the past three months. In reaction, rents were neutral this quarter. The development pipeline remains high, with groundbreakings not letting up steam. Overall, the Baltimore metro area is poised for stable but slowing conditions in the near-term.

First Quarter 2008 Market Highlights:

Net absorption: 133,000 SF, compared to 1.7 million SF in 2007.
Sublease space: Decreased by 39,000 SF. Sublease space is just 0.8% of standing inventory.
Overall vacancy rate: 12.0%, up from 10.9% one year ago.
Direct vacancy rate: 11.2%, up from 10.1% one year ago.
Pipeline (U/C and U/R): 4.0 million SF, up from 2.5 million SF one year ago.
Pipeline pre-lease rate: 29%, down from 51% one year ago.
Rents: Flat, compared to 0.8% growth in 2007.
Investment sales: no notable sales, compared to $978 million in 2007, inclusive of one portfolio sale.

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Flex/Industrial: Year-End 2007

Above-Average Absorption; Rents Up 2.8%; Construction Levels High, But Easing

The Washington/Baltimore flex/industrial market closed the year on solid footing. Net absorption was above-average for 2007. Although pre-leased deliveries contributed to the absorption total, healthy leasing activity played a notable role as well. Construction eased over the past 12 months, but remains high with sub-par pre-lease rates. Given favorable market conditions, rents increased 2.8%. Overall, flex/industrial conditions are healthy in the Washington/Baltimore region.

Year-End 2007 Market Highlights:

Net absorption: 6.6 million SF, compared to 4.3 million SF in 2006 and 5.4 million SF long term average.
Sublease space: Increased by 481,000 SF. Available sublease space represents just 0.7% of standing inventory.
Overall vacancy rate: 9.5%, down from 9.8% one year ago.
Direct vacancy rate: 8.8%, down from 9.3% a year ago.
Under construction: 6.4 million SF, down from 10.1 million SF one year ago. 24$ pre-leased, compared to 21% a year ago.
Space delivered: 6.4 million SF at 31% leased upon delivery, compared to 6.5 million at 32% leased upon delivery in 2006.
Rents: Up an average of 2.8%.
Investment sales: $1.5 billion, compared to $1.9 billion in 2006. Average sales price: $80/SF, compared to $88/SF in 2006.
Land Sales: $149.7 million in 2007, compared to $167.6 million in 2006. Average price per land SF: $8.16.

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Class A Apartment: First Quarter 2008

Baltimore Metro Area: Rents Flat, Vacancy Edges Up

The demand for rental housing has moderated as job growth in the Baltimore area has cooled and supply has increased.

Apartment Market Highlights at 1st Quarter 2008:

Stabilized Class A vacancy has risen 170 basis points across the metro area, to 6.1%. Baltimore’s southern submarkets are up to 5.6% from 3.4% a year ago. Baltimore’s northern submarkets are up 80 basis points to5.8%. Nonetheless, the Baltimore region’s vacancy rate remains only slightly above the national average of 5.6%.
Average effective rents in the metro area are $1,296 ($1.31 per SF). This metro area has demonstrated flat rent growth of 0.5% over the year, due in large part to Baltimore City (down 1.8% from 1st Quarter 2007). Effective rent growth in the Downtown submarket was higher than in the Fells Point/Inner Harbor area (0.7% compared to -8.3%). Rent growth in the Baltimore suburbs was up only slightly – by 1.0%.
Supply pipeline metro-wide has trended upward by approximately 326 units since last quarter. Some 3,814 units are planned to deliver in the next 36 months in the Baltimore metro area (up from the 3,277 units planned this time last year). These counts exclude Baltimore’s southernmost suburbs: Anne Arundel and Howard Counties (whose units are already counted in the Washington metro pipeline).

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Condominium: First Quarter 2008

Condo Highlights at First Quarter 2008:

Sales: There were just 13 new condo sales in the Baltimore metro area during the 1st Quarter – lower than the sales total in the 4th Quarter. There were more contract cancellations than sales during the 1st Quarter in Baltimore City, as projects that delivered were inundated with contract cancellations resulting in a net loss of 119 sales.
Prices: Effective new condo prices show an increase of 1.4% metro-wide during the past twelve months, once the decrease in concessions are taken into account. Prices are up by 3.6% in the Southern Suburbs, while in the Northern Suburbs, prices are down by 3.6%.
Concessions: Concessions are down by 230 basis points metro-wide from last year. Concessions were cut by more than half in the Southern Suburbs, while there was an increase in the Northern Suburbs. Currently, the Northern Suburbs are offering the most concessions.
Pipeline: The actively marketing inventory was about the same as it was last quarter, but the total 36-month pipeline continues its downward trend. There are currently 4,545 unsold units currently marketing. In addition, there are 3,036 units planned with probable sales within the next 36 months. There are an additional 4,700 units in the long-term pipeline in the Baltimore metro area, as well as 5,400 multifamily units either planned as condominiums or rental units.

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