One of our goals as real estate investment operators is to provide our investors with timely and insightful market intelligence. In this month’s article, we’ve asked two leasing and one investment sales brokers to prepare a market summary in their specific area of expertise and market coverage. The information below has been prepared exclusively for the Kenwood investor community and provides more specific information than you would typically read in the annual reports issued by the various brokerage companies.

Below you will find the most up-to-date information from Joe Friedman, an investment sales agent with Edge Commercial; Matthew Mueller, a leasing agent with MacKenzie Commercial Services; and Ken Fellows, a leasing agent also with Edge Commercial. As an investment sales agent, Joe works the entire D.C. Metro area and focuses mostly on assets ranging from $2 million to $20 million. Previously, Joe sold Cherry Lane Business Center for us in September 2020. Matt works with tenants and landlords in the Baltimore County markets and specially leases the Corporate Drive and Sandpiper Circle properties for us. Ken focuses mostly on the Montgomery and Prince George's counties markets and currently works on Lottsford Business Center.

D.C. Metro Investments Sales Market

By Joe Friedman, Edge Commercial

Heading into the final weeks of 2021, the capital markets environment remains robust. Equity and debt are readily available for new acquisitions. The low interest rate environment continues to fuel liquidity events from refinancings and dispositions triggering 1031 exchange. Underwriting, from both lenders and equity, however, in my opinion has not reached levels of irrational exuberance. Leverage for new acquisitions is holding steady in the range of 60-70%. Even with cap rates hovering around 4.00% for industrial assets, borrowers can generate positive leverage with rates in the 3.00–3.30% range and lock in fixed rates with seven-10-year terms that mitigate interest rate risk.

When the COVID-19 pandemic set in, equity and debt aggressively shifted in pursuit of industrial and multi-family acquisitions and away from office and retail. However, as the economic cycle has shifted into a more normalized environment over the last six months, office acquisition activity has begun to tick up as investors search for higher yields and more attractive price per square foot basis below replacement cost. Select suburban office assets in core submarkets have begun to trade with more frequency with cap rates in the 6.50–8.00% range while high-quality medical offices near hospital campuses of Suburban Washington, D.C., have been trading to institutional investors in the 4.50–5.50% cap rate range.

Sales of existing industrial assets have blown past the $200 per square foot (psf) threshold with many sales approaching $300 psf in recent months. This rising cost per square foot trend has fueled developer appetite for land speculation over the last year. With FAR psf values rising as high as $100 psf in close-in markets of Northern Virginia, numerous large tracts of land in secondary and tertiary markets have traded hands to industrial developers driving up land values. However, the fundamentals driving demand for industrial space to support the growth of ecommerce continue to support these new price levels, even in outer suburban areas.

Industrial and flex assets continue to see a high level of investor activity, often reaching contract preemptively before the asset hits the open market. If Industrial and flex assets do make it to the open market, I will conduct as many as 12-15 investor tours and typically receive 5-8 offers. This trend began in early June 2020 once the initial panic and shock of the early stages of the pandemic subsided. 


Heading into 2022, the uncertainty of the pandemic, inflation talk, and supply-chain issues will continue to serve as headwinds in an otherwise strong economy. But the combination of job growth, low interest rates, and steady consumer spending will continue to instill optimism in the capital markets arena and maintain a steady stream of buying, selling, building, and financing.

Baltimore County Office Market

By Matthew Muller and Henson Ford, MacKenzie Commercial

For the last several decades, White Marsh has been a valuable hub for larger companies seeking one of the most accessible areas in Baltimore County. Benefiting from the convergence of I-695, Route 43, and I-95, White Marsh provides tenants access to a larger pool of employees and amenities. From Comcast to Verizon, Medstar, Johns Hopkins, Kaiser Permanente, Strayer University, and IKEA, corporate users have had a presence.

However, in 2021, larger tenants, such as Medstar (administrative only), Verizon, Stanley Black and Decker, Johns Hopkins (administrative only) and Comcast have reduced their presence and returned space they previously leased. Instead, small and mid-sized local tenants have become the more dominant tenants in White Marsh through most of 2021. It’s only in the past few months that the large tenants began to seek space once again. Larger tenants currently in the market include Education Affiliates, Restorative Therapies, Prometrics, and Medstar (clinical use).

Flight to Quality 

With increasing vacancy, smaller tenants have benefited from the wake left behind by larger tenants in class A buildings. Previously smaller tenants were blocked out by larger tenants from leasing these higher quality, newer properties. However, in 2021, some owners decided to subdivide the larger blocks to accommodate smaller tenants. Frequently, these smaller tenants are relocating from much lower quality properties, which not only improves their image, but it becomes a benefit to attract talent in a challenging labor-constrained market.

By the beginning of the third quarter in 2021, the White Marsh submarket began to see some positive net absorption. However, for 2021, we forecast that White Marsh will still experience negative overall net absorption. Rents have stabilized, but construction costs remain a hurdle to make the transaction viable.

On the Horizon

As 2021 draws to a close, we believe that smaller tenants and medical users will drive demand. Smaller tenants want to move out of their homes and patients still want to be seen physically by a physician for most of their needs.

Work, Live, Play

White Marsh is also benefiting from recent residential developments . The new Avenue Grand apartments property, adjacent to the Corporate Drive and Sandpiper properties, is nearing 100% occupancy. Additionally, a new 759-unit residential complex has commenced construction at the intersection of Honeygo and Perry Hall boulevards. Projected to deliver in early 2023, the project includes townhomes, apartments, and a senior assisted-living facility. These residential projects bring a new live-work-play dimension to the market that never previously existed.

Montgomery and Prince George’s County Office Markets

By Ken Fellows, Edge Commercial

In 2021, we continued to see COVID-19 impacting prospective tenants’ real estate decisions and their unwillingness to commit to longer lease terms. Tenants are focused on shorter, more flexible lease terms along with termination options. Except for medical and life science tenants, this seems to be an ongoing trend.

Demand has been steady throughout the year with a slight decrease in activity in the 4th quarter. Despite the setbacks, prospects are focusing on amenities, such as walkable locations, transit, and onsite services. Tenants are willing to spend a little extra for the right amenities and flexibility. Employers believe that having the right amenities and high-end finishes are the key to attracting talent in today’s tight labor market. In reflecting on demand levels, brokers who worked primarily on class A office spaces experienced a dramatic decrease in activity in 2021. However, those focused on smaller tenants and class B properties, only saw a minimal decrease.

Spec Suite Advantages

Landlords who offer “move-in-ready” spaces have a huge advantage. The time required to secure a building permit is significant and the escalating construction costs make it difficult to justify certain improvements when rents are similarly increased. It is not uncommon for landlords to experience construction costs above $50 per square foot and in some cases, we are even seeing $70. This represents a 25–50% increase over pre-pandemic levels. Single-story buildings with private entrances and restrooms, including offering tenants full control of their HVAC systems, are also attracting more interest currently.

Overall, office vacancies in Prince George’s and Montgomery counties are between 15% and 16%. We believe that office net absorption for 2021 will be negative. Despite what many may hear on the news, rental rates have remained relatively steady, with only a minimal decrease compared to 2020 levels.

We hope you enjoy this exclusive market insight report. We wish everyone a wonderful holiday season and we look forward to a new year. If you are interested in more real estate investment insights, subscribe to the Kenwood Community and connect with us on social media.