Commercial Real Estate Vacancy Rate Overview

Washington, DC, Maryland, and Northern Virginia

Office Vacancy rates in Montgomery County and Northern Virginia have remained in the 15% range over the past 5+ years. Those markets that are served by Metrorail stations have seen the bulk of the leasing activity. Markets such a Bethesda and the White Flint Corridor in Montgomery County, and Tysons Corner and Reston in Northern Virginia, have been the big winners with Metrocentric development. These markets are seeing office vacancy rates under 10%, while non-Metrorail markets are seeing vacancy rates of 20%-30%+.

While development of new office buildings continues in Washington, D.C. the strong level of leasing activity has allowed the vacancy rates to remain in the 10%-12%. As DC continues to see re-gentrification occurring in neighborhoods throughout the City, more businesses are finding DC to be a great place for employees to work. Redevelopment projects have brought an incredible assortment of restaurants, retailers, and residential options, as well as brand new office buildings. DC is now a 24/7 location attracting a demographic that includes millennials, empty nesters, and all others in between. The next phase of redevelopment will be renovation and/or repurposing of older office buildings.

Flex and Warehouse Vacancy in Montgomery Co. and Northern Virginia have seen a slight reduction in vacancy rates. The flex/industrial market in both areas has dropped to 10%, down from 15% in early 2014. Quality warehouse space is becoming harder to find in Montgomery County and NoVa as the cost of land has made the construction of new warehouse properties cost ineffective, and putting a cap on available space. Rents for warehouse space here have increased over the last 5 years from $7-$9 psf NNN to $12+ psf NNN. Many warehouse tenants have started looking in Howard and Prince George’s counties in MD for less expensive quality warehouse options. Flex properties remain an excellent option for suburban based tenants looking for less expensive office space.

Quality Retail Vacancy space across the DC area is rarely available. Most of the larger chunks of vacancy are in the older centers. Rents for newer retail properties in high traffic areas are in the $50-$80+ psf NNN with some locations seeing rents $100+ psf. As Etail continues to grab a higher share of purchases made by consumers, retail tenants are finding it difficult to justify rental costs for storefront retail. Some of the big box retailers and larger grocery store chains are considering significant downsizing and redesign in which grocery type stores will only sell perishable goods (meats, fish, vegetable, dairy) and all non-perishable products will be purchased online and delivered to the home. Clothing and home goods based retailers will carry samples or demos of items, but most purchases will be online. The Etail market is slowly eliminating the Mom & Pop and local retailers. Unless they are selling a very unique product, they cannot compete with the online based retailers or generate the revenues to support current rents. Look for more restaurants and service based business at your local shopping areas and get used to buying your clothes and most everything else online.

Baltimore

The Baltimore area commercial real estate market is typically very constant. Anne Arundel, Howard, Baltimore, and Harford counties, and Baltimore City has remained at approx 11% since 2012 with very little fluctuation in rental rates. In many cases rentals rates at most office and flex properties in the Baltimore area are the same today as they were 20 years ago. The entire office property market for Baltimore consists of approx 190M sf, while the entire DC market includes over 500M sf. The Baltimore area does not offer a coordinated suburban alternate transportation option like the Metrorail in the DC area, but there are local bus systems that offer a form of transportation to those employees that prefer not to drive. Like the DC market, office developments that are located near strong amenity bases are much more desirable and are experiencing lower vacancy rates. Those office and flex properties that do not offer easy access to amenities are trying to compensate with lower rental rates and larger incentive packages, but vacancy rates in these projects are more than double that of properties with better access to amenities.

Like the DC area, the retail real estate market in Baltimore is very strong. The current vacancy rate is just over 5% like DC, but rents top out in the $60 psf range at the higher end retail locations – well below the premiums in the DC market. However, as noted in the DC summary, a major change in the retail real estate market may be on the horizon.

Baltimore offers a lot more variety in the warehouse sector. Baltimore’s industrial market consists of more than 180M sf that includes an abundance of large distribution warehouse and small bay warehouse properties for tenants to consider. The DC area has a total inventory of approx 163M sf, primarily consisting of small bay warehouse options. Warehouse rents in the Baltimore area are typically more affordable, ranging $1.75 psf-$5 psf for distribution warehouse and $6-$9 psf for small bay locations.

SBA Loan Allows 90% Financing of Commercial Property

Recent revisions in SBA loan program allow small businesses to use refinancing of real estate to fund expansion

The U.S. Small Business Administration's (SBA) 504 Certified Development Company lending program can now be used to finance the purchase of owner-occupied commercial real estate (CRE). Eligible businesses can borrow up to 90% of purchase price plus construction costs associated with the construction of a new building or renovation of an existing property. In some circumstances, the financing can include equipment and/or machinery. Full details of this program's new features can be found in the American Recovery and Reinvestment Act of 2009.

This news is a welcome development for business owners looking for alternatives to help stabilize occupancy costs. The 504 loan structure also allows for the refinancing of existing owner-occupied properties. Depending on the loan-to-value ratio, this program allows businesses to borrow additional funds to be used for business expansion.