The State of the Office Market in Harford County
In September of 2011, I used the statement “unprecedented growth with an unimaginable impact” when describing the state of the Harford County office market given the then current growth of numerous office developments in the County. In the short period of time leading up to BRAC (Base Realignment and Closure), the average office building size in the market had nearly doubled from 27,900 square feet to 48,000 square feet. The Class “A” portion of the market was seeing new projects such as The GATE (MD Route 715), North Gate Business Park (Route 22), Aberdeen Corporate Park (Route 22), Fieldside Commons (Long Drive), and the Hickory Ridge Technology Campus (U.S. Route 40). Combined, these several commercial developments would add over 1,400,000 square feet of office space to the County pipeline. Then, activity was brisk and there was an overall sense of optimism with expectations for a “game changer” in place.
Today, the office market has changed, but not entirely for the good of the market and local economy. Following various federal events in 2012 and 2013, including the Department of Defense’s budget setbacks, the U.S. Government Sequestration, and then its infamous shutdown this past fall, the economic driver that was to absorb most of the new office space has come to a halt. Yes, the spigot seems to have been turned off. For the past 18 months, the activity in the Harford County office market has been slow; some would say “stagnate.” Most of the more sizeable relocations occurred in 2011 and were the genesis to a sizeable growth in a few of the key office developments. The main benefactor was The GATE project, located along Route 715, inside the gated area of Aberdeen Proving Ground. Although, it has yet to reach its maximum, intended development size and potential, including retail services and amenities, as well as the portion of project that was designed to be outside the gate. Further complicating matters is the indirect vacancy in the market that compounds the problem. This segment of the office vacancy includes those tenants that have leased office space and are offering a portion of their space as available for sublet or assignment. Given their own problems with loss of defense contracts, or lack of business growth, these companies are trying to reduce their high occupancy costs by shedding space to others. The total amount of sublet space available is approaching nearly 100,000 square feet of additional inventory. With several larger corporate tenants currently trying to find their own way in this new economy, and very few indicators that 2014 will be even better than years past, the market will remain the “land of vacancy.”
The impact of what growth did occur was real and provided for an upswing in the County’s employment segments. Prior to 2011, the percentage of businesses and employees related to professional trade, research and technology, and scientific services was 8.2 percent and 10.3 percent respectively, in comparison to the total number of businesses and employees in the County. Today, those numbers are now approaching 11.8 percent and 14.9 percent, demonstrating the numerous new companies in the market and new employees now working in Harford County, most prominently the Aberdeen area. This growth has had a further positive impact on surrounding communities, with the majority of the employment relocations from BRAC causing housing purchases to see substantial growth in Bel Air, Churchville, Havre de Grace and Aberdeen.
What’s next? Where do we go from here? Is there another wave of activity or industry that is planned or expected? Certainly, driving around the market, one would get a sense of just how significant this lack of activity has been. More so, when you consider the current makeup of the County’s employment sector, the continuous unknowns of the Federal Government, and the ongoing marketing efforts by neighboring states to out-position Maryland, the potential absorption of this amount of space could be years, if not decades. As mentioned before, prior to BRAC, Harford County had typically absorbed approximately 63,000 square feet of office space each year. As a primary market of smaller, entrepreneurial businesses and a bedroom community to larger economic markets such as Baltimore City, White Marsh, Towson and Hunt Valley, Harford County was never perceived to be a core market of corporate office environments. BRAC was to change that, and, in part, it has created a newer, yet smaller than expected, impact on both the size and quality of the office market. Based on the current amount of vacancy, when applying the earlier absorption, it could be 12 to 14 years before this vacancy is absorbed. That should startle and cause concern for the market, the County leadership and area municipalities that rely on new employment, tax revenue and industry growth, which leads to residential growth and enhanced retail expenditures in the local community.
Recent initiatives with the University Center, the former HEAT Center, and its effort to bring a university-level research park to Harford County are early signs of activity to curb the impact of this high vacancy. With a market survey underway to determine demand by the State’s University systems for new programs and student demand in the County, could this be an opportunity to create a new employment sector, a new demand for office space? However, as it is in its infancy, it could be several years before funding sources, long-term commitments and operational programs are in place. Certainly, this is a very positive effort by the leadership of the University Center to be ahead of the curve with creating the next “game changer” to the local market.
As 2014 begins, there is little expectation among the local market professionals that this year will enjoy any substantive or sizeable activity. It is expected to continue with the lackluster demand and prospect activity. The challenge in front of our elected officials, local municipalities and state leadership, is to accept the reality of this new market and start to identify potential ways to address this problem. This level of vacancy helps no one. It undermines the branding of Harford County as a place to do business, as a community of success and growth. It needs to be addressed, and soon. I95