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Economist: Manufacturing could bolster region’s industrial market

The state’s transportation assets are a bulwark of the Baltimore metro area’s industrial real estate market, but a weakness in manufacturing continues to undermine the strength of that market, says a prominent local economist.

Anirban Basu, of the Sage Policy Group, said despite a business climate in the state that is widely viewed as unfavorable, Maryland remains a major distribution hub primarily because of access to a variety of shipping methods.

“So, even though we don’t manufacture a lot of output anymore, we manage a lot of through put. We’re still major distributors,” Basu said. “We have advantages including the Port of Baltimore, [Interstate]-95, [Interstate]-70 and other major thoroughfares.”

A report on third quarter of 2014 by Basu, for MacKenzie Commerical Real Estate Services LLC, found the local market for industrial space remains strong, and that it absorbed 1.7 million square feet of warehouse space in the last quarter alone. That absorption was driven by strong demand in Harford and Cecil counties, which absorbed 863,931 square feet of warehouse space. Direct vacancy in the overall metro market fell from 10.1 percent a year ago to 9.2 percent during the past four quarters.

“We’re a natural center for distribution and logistics, and not surprisingly absorption of warehouse space has been quite intense over the past  year, and it wouldn’t surprise me if it became more intense going forward, given the expected dynamics driven in by the Port of Baltimore,” Basu said.

But he argued the market could be in an even stronger position if it was in a state with a reputation for being business-friendly. One of the sectors that could bolster that market is manufacturing, but Basu pointed out the nation as a whole gained 200,000 net manufacturing jobs in the past year while Maryland lost about 4,000 of those positions.

“When a region loses manufacturing jobs its supply chain erodes. In other words, manufacturers often depend upon other manufacturers for the supply of inputs, and when the input suppliers disappear often other manufacturers leave with them,” Basu said.

He said it would make sense to leverage assets, such as the Port of Baltimore and the market’s intermodal transportation system, that make the area attractive for distribution to attract more manufacturing.  But the state’s tax and regulatory environments don’t make it an enticing proposition for companies to set up shop in Maryland.

Basu said Baltimore County is a prime example of how the state’s policies have hurt manufacturing. In 2002, the county was home to 31,000 manufacturing jobs. Now it has fewer than 15,000.

The loss of manufacturing in the state has been a consistent trend for decades. According to a report on advanced manufacturing released earlier this month by the Maryland Department of Business and Economic Development, in the 1960s manufacturers made up 20 percent of the state’s local workforce. That figure stands at 4 percent today.

He said it’s possible that a site like the Sparrows Point peninsula, which Baltimore County Executive Kevin Kamenetz has touted as a future hub of advanced manufacturing, could be successful by using targeted subsidies. But that kind of spot incentive will not lead to a larger resurgence in manufacturing that adds extra demand to the commercial real estate market in the Baltimore area.

“You can counteract a challenging economic development environment through site specific subsidies, including tax breaks, but of course the better thing for Maryland, and the Baltimore area, is to have an economic development environment that works for everyone,” Basu said.