MacRo LTD Blog

Commercial Leasing Displays Continued Robust Activity in 2017

Posted by Rocky Mackintosh on February 14, 2018 Leave a comment

Total gross square footage leased in all commercial real estate sectors in Frederick County exceeds 2016 stats by 56%, but net absorption provides a reality check.

 

CRE Leasing TT 2017-2-992389-editedCRE brokers and their clients may be thinking that they can see a light at the end of the tunnel when it comes to signing new leases … but the net results tell a slightly different story.

Overall a total of 1,290,000 gross square feet was gobbled up, which is 156% of 2016’s totals and within a hair’s breadth of 200% of that of 2015.  

On the other hand, it appears that much of the activity was a matter of trading spaces, as the net absorption figures, while much better than the negative numbers of 2016, didn’t reach 100,000 square feet.

According to statistics gleaned from CoStar (the world leader in commercial real estate information that has the most comprehensive database of real estate data), the vacancy rate for all property types (office, medical, warehouse, flex and retail) at the beginning of last year hovered around 22.1%; however, by the end of 2017, it had popped up to a solid 25%!

But let’s look at the brighter side of what happened last year!

Overall, consider the following:

  • The total number of lease deals in Frederick in 2017 increased by 26% over 2016.
  • The total amount of square footage leased increased by 56% in 2017 versus 2016.
  • The weighted average space size grew from 4,288 SF in ’16 to 5,245 SF in 2017 (+22%).
  • With the exception of big bumps in the industrial leasing sector, on average lease rates remained generally stagnant throughout 2017.

Here’s a look at the amount of lease activity pulled from CoStar in each sector.  This sheds more light on why our landlords are still feeling reasonably optimistic:

Office

Activity in the office leasing market showed a modest gain in new leasing. Total newly leased square footage jumped by 9.7% to 313,000 from 285,500. There was a 6.25% increase in the number of deals struck with 102 transactions in 2017 up from 96 in the previous year.

The good news here was that while the average triple net equivalent lease rate remained steady at around $13.15/SF, the average lease term moved up from 4.1 years in 2016 to 4.6 years. Along with that average unit size grew by a mere 3% from 2,970 SF to 3,086 last year.

Flex

The big gain in the flex market showed up in square footage leased with a 16% rise from 181,000 in 2016 to 210,000 last year. The average size of space leased climbed from 5,200 SF to 5,800 SF last year (+13%). The average triple net equivalent lease rate fell slightly to $7.43/SF, and the average lease term took a 28% dive from 5.3 years to 3.8 years.

Retail

Leasing activity in the retail sector has been struggling the last few years, but 2017 brought new life to several landlords.

The total number of deals struck increased from 40 in 2016 to 69 last year, and the total gross square footage of new deals more than doubled to a four year high of 277,000.

Running in line with flex and office trends, average NNN lease rates actually fell by $0.40 to $17.40.

An interesting angle to consider: In this sector the strengthening business climate has many flex space tenants with heavy lease rates taking action to build or buy their own facilities … just check in with your local general contractor and ask how business is going!  

Warehouse

This sector of Frederick County commercial real estate is on a roll.  

Industrial warehouse space continues to improve. The number of 39 transactions was an increase of 70% over 2017 and average NNN lease rate popped from $6.01 to around $7.50/SF.  

Even the average lease term moved ahead from 2 years in 2016 to 3.25 years.

But the total square footage leased over 2016 was the bigger story with a figure of 490,500 over 2016’s 417,300 SF versus 2015's 236,000 SF. All that difference was made up in one transaction when Navistar Marketing LLC signed a 7 year deal for 214,600 square feet in August of 2017 at 4612 Navistar Drive in Frederick. Hats off to the gents at JLL for pulling that one off!

With very strong activity in the commercial real estate leasing market in Frederick, and a prospect for a healthy economy into 2020, the momentum should be there to bring lease rates up and vacancy rates down. There is no question that prospective tenants continue to show up in large numbers.

Please let any member of the MacRo Team know if we can be of assistance!

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Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He has been an active member of the Frederick, Maryland community for over four decades. He has served as chairman of the board of Frederick Memorial Hospital and as a member of the Frederick County Charter Board from 2010 to 2012.  He currently serves as chairman of the board of Frederick Mutual Insurance Company. Established in 1843, it is one of the longest enduring businesses in Frederick County.

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