Residential conversions make office rental market more competitive and stimulate development interest

The Baltimore region office market showed rental rate growth at the fastest rate in nearly 10 years in some areas during the third quarter according to JLL (NYSE:JLL) market reports. Rental rates for the upper tiers of the Class A office market have increased sharply, while Class B space has experienced slow, but steady gains.

The overall vacancy rate for Class A space dipped below 10 percent and asking rental rates rose 5.1 percent year-over-year, making the market more favorable for landlords in several submarkets. Annapolis has experienced the most robust gains with asking rates for Class A space jumping 8.8 percent during the past year. In Baltimore City, Class A rates on Pratt Street have grown by 5.1 percent over the past year to an average of $29.47 per square foot.

“Residential conversions of chronically vacant space downtown and owner/user sales in the suburbs have effectively removed more than two million square feet of buildings from the market in the past few years,” said Mark Levy, Managing Director, Greater Baltimore Region. “As a result we are starting to see competition for the available office space on the market and new developments get underway.”

This crunch of space has driven increased rents on Class A space prompting developers to move aggressively on projects, with 1.9 million square feet now in the development pipeline. Preleasing on these new developments has dropped to 53.2 percent, which is the lowest level in five years. This trend is most prevalent in Howard County, where preleasing in the current pipeline will drop to just 30.3 percent once a 125,000-square-foot build-to-suit delivers later this year. At 10170 Junction Drive in the BWI/Howard County submarket, St. John Properties has moved forward speculatively on 100,000 square feet, which will deliver the submarket’s first Class A inventory.

About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $59.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.