Central Prince George’s County Industrial Analysis

Market Insight

CENTRAL PRINCE GEORGE’S COUNTY INDUSTRIAL ANALYSIS

The Central Prince George’s County Industrial subset would consist of the Landover/Largo and Cheverly/Hyattsville submarket. The total rentable base area for this subset is approximately twenty one million square feet in total, representing roughly 1/3 of the entire Prince George’s County Industrial market. The Central Prince George’s County submarkets have thrived over the years due to their proximity to Washington, DC and ease of access to the Capital Beltway making for an invaluable local/regional distribution point. Presently the subset is experiencing a higher than average vacancy rate of approximately 15%. Most of the vacant spaces however are in older class C buildings that are now considered obsolete due to lack of truck court depth, lower ceiling heights or a variety of other deficiencies. If you restrict the view of the subset to modern product (defined as built or renovated yr 2000 or later) the vacancy rate falls to just 2% of the approximately 1.8 million square feet of existing product.

The average asking rental rate for modern buildings is $6.50 NNN, Tenant’s are still in demand as positive absorption has only become prevalent again over the last 3 – 4 quarters. Landlords are still offering significant tenant concessions (including free rent and upgraded TI allowance packages). The market has seen increased occupancy from tenants in Northern Virginia and DC moving in to take advantage of lower rental rates and more efficient buildings. In the last year alone Gold Crust Bakery out of Alexandria took down an 82,000 square foot building and USESI, who had both MD and NOVA locations, consolidated into a new 120,000 square foot space. Landlord’s have been very aggressive on renewals and as the market is starting to tighten up there has been more movement from tenant’s in Class B and C space looking to take advantage of lower rental rates and relocate to Class A space.

New construction has been quite limited over the past 3 years due to a scarcity of industrial zoned land and negative market absorption. As demand strengthens and newer buildings continue to see increased occupancy the remaining industrial parcels will be developed. SteepleChase 95 which is just south of this subset, but a competing park for tenants, is expected to deliver two new buildings (48,000 and 93,000 s/f) by first quarter 2012. This is a very good sign for the market. The last three quarters have shown stronger absorption with Lincoln 495 landing a 50,000 s/f tenant and AOC/GSA leasing approximately 150,000 square feet in Cabin Branch Drive and Sheriff Road. Within the Landover submarket the modern product is almost fully occupied with both Cabin Branch Distribution Center (1M s/f business park) and the American Investment portfolio (approximately 300,000 s/f) both 100% occupied.

Market Outlook

The remainder of 2011 and the first half of 2012 seem poised for continued strengthening of the Prince George’s County industrial market. We anticipate continued demand from GSA for warehouse space being relocated from Washington, DC along with an ever expanding need for warehouse facilities for various agencies. We also anticipate growth in the retail warehousing supply chain as e-commerce continues to flourish and more regional warehouses are needed to keep up with the ever growing consumer base in Washington, DC. As the residential market continues to thrive in the DC Metro area the construction and service contractor businesses will continue to be a growth sector as well for our industrial market. We anticipate positive absorption over the next few quarters which should lead to higher rental rates and fewer landlord concessions needed in the market. With minimal new product available for lease presently we believe that speculative development of warehouse space over the next 3 – 6 quarters will increase and the remaining industrial ground in the Central Prince George’s County Industrial subset will dry up relatively quickly.

LANCE SCHWARZ, Vice President, NAI The Michael Companies, Inc., 301-918-2938

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