Baltimore Industrial Sector Sees Tight Vacancy, Strong Absorption Rates

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More than 4.4 million square feet of industrial and warehouse space was leased in the greater Baltimore metropolitan region during the fourth quarter of 2021, according to a new report by Lee & Associates-Maryland.

Over the course of 2021, 15 million square feet of industrial and warehouse space was leased in the region.

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“The industrial market continues to experience a drop in available space with an increase in leasing activity,” Allan Riorda, principal of Lee & Associates-Maryland, told Commercial Observer. “In the past year, the market has dropped from a vacancy rate of 6.3 percent to 3.4 percent and we are seeing absorption rates double what they were a year ago.”

The area experienced a net absorption rate of approximately 3.7 million square feet in fourth-quarter 2021, compared with 4.3 million square feet absorbed in the third quarter.  

“The growth is mainly due to the acceleration of e-commerce due to COVID,” Riorda said. “Companies are also looking to store larger inventories due to supply chain issues and the need to service customers. The current market has seen unprecedented demand, combined with rent growth. One of our portfolio’s rate has grown over 110 percent in less than two years.”

The execution of several large leases in Harford County contributed to the strong absorption total and the resultant drop in the market-wide vacancy rate, as well as starting rental rates that have now ticked $2 to $3 higher from this time last year, the report notes. The county is ideally located near major highways and between Baltimore and Washington, D.C.

The largest leases in the quarter were WebstaurantStore’s 656,800-square-foot deal at 1100 Woodley Road in Aberdeen; XPO Logistics inking 571,762 square feet at 610 Chelsea Road in Aberdeen and the 506,003-square-foot lease for Lenox at 16507 Hunters Green Parkway in Hagerstown.

On the sales side, Lee & Associates-Maryland is seeing deals closing at cap rates below 4 percent. This activity is typically occurring for buildings with just a few years left on their leases and are now being underwritten at current market rates, Riorda said.

During the quarter, 40 transactions were completed for a total of approximately $667 million. This includes STAG Industrial’s acquisition of 11835 and 11841 Newgate Road in Hagerstown for $139.5 million from Prologis, and The Blackstone Group’s $95 million purchase of 200 Gateway Drive in North East from Medline Industries. 

“We foresee a long runway ahead for this asset class nationally and specifically among densely populated submarkets including the greater Baltimore-Washington, D.C. area, as retailers and suppliers attempt to keep pace with the same-day and next-day demands of consumers,” he said.

Currently, approximately 12 million square feet of space is under construction in the Baltimore region, the largest of which is the 1.8 million-square-foot building at Tradepoint Atlantic that will be delivered in June 2022. 

Keith Loria can be reached at Kloria@commercialobserver.com.