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Baltimore office market looking strong

Office markets continued to improve in Maryland’s two major metro areas, but the surging Baltimore economy is expected to bolster its market heading into next year.

Delta Associates, which provides real estate information and analysis, released reports on the performance of the Washington, D.C., and Baltimore metro office markets in the recently completed third quarter. The Baltimore market is expected to continue to perform well because of positive economic indicators, such as the 2.6 percent bump in payroll employments during the 12-month period that ended in July.

“It’s holding up quite well. It’s benefiting from strong job growth in professional and business services sector, which is the sector that is most closely tied to office market performance,” said Sandy Paul, executive vice-president at Delta Associates.

The office market in the metro area reflects the improving economy in the area. There was positive net absorption for the quarter of 218,000 square feet and positive 224,000 square feet year-to-date. The direct vacancy rate has ticked down to 10.9 percent from a revised 11 percent at mid-year and 11.2 percent from the end of 2013. The direct vacancy rate is expected to fall to 10 percent in two years with demand outpacing supply by 800,000 square feet.

In the Baltimore market, Paul said, it’s best to keep an eye on growth in the cyber security sector because it’s been a strong performer and because of the amount of investment being made in the industry, which should increase demand for office space.

“Coming out of the recovery we have seen general slowness in the office market around the country, particularly as private-sector firms continue to be uncertain about demand for their services, and as they try to save on occupancy costs that consolidate their operations,” Paul said. “So what we’re seeing in Baltimore is actually quite good by that standard.”

Washington, D.C.’s economy has been hampered by federal spending cuts and a tough winter. Despite those challenges the payroll employment slightly increased by less than 1 percent and the positive trend is expected to continue.

The office market in the D.C. area also showed slight improvement. But much of that was coming from smaller leases, which is pushing rent rates down. The net absorption rate was a positive 506,000 square feet this past quarter and a positive 649,000 year to date. But the direct vacancy rate remained unchanged from mid-year at 11 percent and up from 10.8 percent at the end of 2014.

“The Washington metro office market has been sluggish. It’s beginning to rebound but the growth pattern is likely to be slow,” Paul said.