15 Hot Trends to Watch in 2015
Now that Sony has canceled the release of The Interview, we needed something else to think about on New Year's Eve. So we asked five Baltimore real estate pros to tell us the three stories they'll each be watching as we enter 2015.
St. John Properties VP Bill Holzman
1) Retail's flight to quality - Bill expects retail leasing activity to remain healthy in the Class-A market, which he hopes will lead to better infill of Class-B product next year.
2) Continued importance of retail in mixed-use - New residential growth remains hot, he says, and retail growth often follows. "I like what that means for our properties such as Baltimore Crossroads and Maple Lawn," he says.
3) An uptick in fast-casual dining - New concepts always find Maryland's strong market appealing, he says, but they often lean toward opening first in Maryland's DC suburbs. Ethnic foods and create-your-own pizza restaurants are concepts that have found success in other markets and may be considering expanding into our market.
David Downey Jr, Senior MD & Principal, Cassidy Turley
4) Decreasing large blocks of Class-A office space - Minimal blocks of space could give larger users the opportunity to relocate to Baltimore City, as Pandora is in the process of doing, says David (who's also vice chair of Goodwill Industries of the Chesapeake, snapped left at the Towson store opening this year). The few buildings that have larger blocks of contiguous space (80k-plus SF) are not well located nor new construction. Without high-quality options, it will be extremely difficult for companies outside of the city to consider an urban relocation, he says.
5) Opportunities for more quality retailers - As more residential projects come online in the CBD, more quality retailers, including grocery stores, will consider opening locations. "This has the potential for a hugely positive impact on our streetscape," he says—and aid in bettering the perception that the CBD's streets are safe after business hours due to more pedestrian traffic.
6) New workplace strategies - Is the open-work environment and square footage efficiency a blip on the screen or truly the future, he asks. And in regards to coworking, he wonders if the sharing of knowledge and working information is more important than privacy and security. "Which will win in the future, or is there some method to strike a balance?"
Gil Neuman, Managing Director, Greysteel
7) Interest rates – There’s still an incredible amount of capital chasing commercial real estate, especially in urban environments, says Gil (right, with colleague Richard Seybolt). Even if the Fed decides to raise interest rates, he believes that the historically low cap rates will lag behind given capital’s huge appetite for deals. And in the Mid-Atlantic, there’s not much quality product available for investment.
8) CMBS loans – Many loans made in the heady days of 2004 to 2006 are coming due. He says that real estate investment value recovery has been so strong that he doesn't expect the bloodbath people had predicted will come. “Most property values have come back to the point where most of the loans will now be worked out instead of going back to REO,” he says.
9) Baltimore becoming more of a primary market – The difference in cap rates between Baltimore and DC is a large spread, Gil points out. “If you don’t want to pay DC’s 4% cap, you might go to Baltimore for a 200 bps spread for the same quality asset—but just in Baltimore,” he says. The city is also seeing a residential resurgence, thanks to Millennials, empty nesters, and even those who commute to DC moving back to the city. “It’s giving it a new shine in retail and multifamily investors’ eyes."
Tom Maddux, Principal, KLNB Retail
10) Slow, steady development with not a lot of risk - Baltimore has found the right momentum and the pace won’t change, says Tom (right, with colleague Andy Georgelakos). Any new development will be thoughtful, and lenders are still fairly conservative. He anticipates development all around the region to pick up.
11) Retail development not reliant on a Wegmans or Walmart Supercenters - Retail centers that have delivered in the past few years were mostly delivered with either two of the retailers as anchors, but now we’re seeing Whole Foods, Harris Teeter and other quality retailers leading. A new wave of development is coming due to pent-up retail demand and Class-C and D assets being removed through conversions to assets like schools and medical centers, he says.
12) The state of Maryland—Given Baltimore’s proximity to DC, local employment is not only dependent on what the state does, but the federal government. Unemployment is currently above the national average, and Governor-elect Larry Hogan is going into 2015 with a budget deficit.
Mark Glagola, Managing Director, Transwestern
13) The effect of the US Cyber Command on the B-W Corridor – The office market, to date, hasn't seen much activity from the USCYBERCOM, but Mark (snapped with Molly Benson, Tom Gentner, and Cheryl Washington) thinks it may gain more traction in increasing jobs and filling office space next year. “It will be the leading demand generator in that market,” he says.
14) Class-A industrial’s impact on Class-B – Baltimore's top industrial spaces have seen significant demand. Will Class-B be left behind, or will it follow in lockstep as less Class-A space becomes available? It’s all about the functionality of the space, he says.
15) Industrial’s day of reckoning – There’s scarce supply in Baltimore's industrial sector, and soon we’ll have no available land, he says. He’ll be watching how this will impact overall market conditions.