The office market in the Baltimore metro area continues to crawl toward recovery as statewide job numbers persist in sending mixed signals.
The latest employment numbers from the state Department of Labor, Licensing and Regulation reports the state is in the full employment range. Full employment is reached at 5.5 or 6 percent unemployment, depending on who’s defining it. But unemployment did tick up in May.
“I think there’s a lot of concern by businesses about unemployment and other indicators that say the economy is not doing as well as we’d like,” said Bob Aumiller, president of MacKenzie Commercial Real Estate Services LLC.
The state lost 1,300 jobs in May and the unemployment number increased from 5.5 to 5.6 percent, officials announced. In April, the unemployment number tracked down to 5.5 percent, but that was after 6,100 people dropped out of the labor force. Between February 2013 and February 2014 the metro area experienced 0.9 percent job growth compared to the national rate of 1.6 percent.
Although there’s positives and negatives in the job numbers, they put the market in line with predictions made by economist Anirban Basu, chairman and CEO of the Sage Policy Group, in a report released earlier this year.
In his report, Basu predicted the Baltimore metro market would experience decent, if not spectacular, increases in employment. He also reported 70 percent of new jobs created between February 2013 and February 2014 were in business and professional services categories. Growth in those job areas would lead to what Basu described as a “grinding office market recovery.”
So far, Aumiller said, he hasn’t seen much sign of a recovery in the office market. He said he’s seeing some signs of life in sectors such as the industrial market. But he believes concerns about the economy are holding the office market back.
“The office market has been one where people are concerned about the future of the economy. They’re not making bold decisions. They’re not expanding — unless you’re in a web-based situation,” Aumiller said.
Al Cunniff, marketing director at St. John Properties Inc., said the company has seen an increase in business since unemployment peaked at around 8 percent nearly five years ago, and hasn’t seen any noticeable impact as a result of recent statewide job numbers.
“In any case, the quality of our offices and the location of our offices are unchangeable. So when businesses look for space they are attracted to the quality and location of our portfolio,” Cunniff said. “Those constants, combined with the improving job market, has definitely increased our leasing rate over the last several years.”
Joseph Nolan, principal at commercial real estate firm NAI KLNB, said he doesn’t worry too much about monthly job reports. But he said there is a correlation between employment expectations and how the commercial market performs.
He said if the economy is down companies aren’t expanding, which is reflected in leasing. He said if there’s a lot of office space it could mean that the economy is booming and the space just hasn’t been occupied. But he said that in the Baltimore metro market, particularly in the suburbs, there hasn’t been much new building and vacancy rates still aren’t great.
“If the economy had really minimum unemployment, boy, you would see office buildings probably being built all over the place,” Nolan said.
Both Nolan and Aumiller warned that trying to attach trends to the commercial market as a whole can be misleading. They argued that while an area like Owings Mills is struggling with office vacancy rate another area, such as McHenry Row in South Baltimore, is extremely tight.
“It’s hard to make a blanket statement about the markets around Baltimore. There’s all little submarkets that … some are great and some aren’t so great,” Nolan said.