Report on commercial real estate upbeat for 2015

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There’s reason to be optimistic about the office and industrial markets in central Maryland heading into the new year, according to a year-end report from real estate service provider NAI KLNB.

The report cites trends, such as the e-commerce sector thriving in the area, and the election of Republican Larry Hogan as governor as positive developments heading into 2015.

“I think the general feeling is that you now have a businessman who is in the governor’s mansion … he’s not a career politician so to speak. He’s a commercial real estate developer,” said Joseph Nolan, principal at NAI KLNB. “This guy knows business, and I think all that can do is bode well for Maryland becoming a business friendly state.”

The industrial market, which saw tremendous growth particularly along Interstate 95, is expected to continue as a strong sector. Much of that demand is expected to be driven by e-commerce, which is expanding by as much as 20 percent annually.

Because of Baltimore’s location in the Mid-Atlantic, its port and its highway connections it’s anticipated the region will remain an attractive location for distribution and manufacturing companies trying to meet consumers’ “want-it-now mentality.” This has resulted in speculative warehouse projects being built all along the I-95 corridor as well as retro-fit projects increasing in popularity due of the limited amount of properly zoned land in the area.

NAI KLNB is also anticipating the Baltimore area economy to outperform other portions of the state. A large reason for Baltimore’s success is that it has a more diverse business base and therefore wasn’t hit quite as hard by sequestration and government spending reductions. Growth in the business services and technology sectors is expected to continue and will help propel steady, if unspectacular growth, in the office market.

“Industrial is doing better and better and better. I still think office has a ways to go,” Nolan said.

Another trend the company expects to gain momentum is the continued evolution of office space away from cubicles and toward more open space. Those changes are being driven in large part because of the proliferation of technologies such as tablets and white boards as well as younger workers’ preference for those working environments that feature more collaborative space.

Medical office buildings also are expected to evolve, in large part because of changes in the industry brought on by the Affordable Care Act. Hospitals and private practices are anticipated to reduce overlap and cut the amount of space needed in some facilities. But hospitals and private practices will also start to invest in off-site locations to provide better access to patients.

Although there are reasons for optimism there are still areas of concern. David Fritz, principal at NAI KLNB, said he felt the leasing market had been stagnant in 2014. Nolan also expressed concern that the office market in Harford County, which was built out in anticipation of an explosion of jobs that were expected to come here from military base closures elsewhere. That never materialized.

But overall the report, and the principals, expressed optimism about the local commercial real estate market and its performance in the new year.

“I think with low interest rates going forward for the next foreseeable 12 to 18 months we expect that activity to continue,” Fritz said.