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Demand Grows for Heavy-Duty Space With Easy Highway Access

By Dana Hedgpeth
Washington Post Staff Writer
Monday, December 25, 2006

Developers are building more industrial buildings in the Maryland and Northern Virginia suburbs, responding to a steady flow of tenants that need warehouses and distribution centers, real estate experts say.

In Maryland, about 825,000 square feet of such space was under construction in the third quarter of this year, compared with 454,000 square feet in the comparable quarter of 2005. Of the space under construction, about 34 percent of it is pre-leased.

Much of the space being developed is in Landover, where real estate brokers say there is good road access to both the Washington and Baltimore markets.

"There's no industrial space left in the city anymore," said Michael Meagher of Preferred Real Estate Investments, a developer of industrial and office space. "It's all being pushed out to places like Prince George's or the Dulles Corridor. There's very little land left, and you have a population that's exploding with no space for these service operations."

Meagher's company is marketing a 1-million-square-foot facility in Landover that was once used by Giant Food as a distribution center. It also has 30 acres nearby on which it plans to build 50,000-square-foot buildings that can be used as warehouses, distribution centers or offices for companies in such businesses as heating and air conditioning, food distribution, contracting and carpet installation.

"We don't see demand letting up, and there's really very little in the pipeline," Meagher said. "There's not a lot of vacancy to begin with."

The vacancy rate in Maryland was 9.6 percent in the third quarter, up from 7.7 percent. Most of that change can be attributed to the former Giant distribution center.

Rental rates in Maryland are relatively unchanged from last year at $6.29 a square foot, although they are down from $7.63 in the second quarter of this year.

Robert Hartley, director of market research at Trammell Crow, said average rental rates in Maryland are being driven down because much of the space coming in is in the Interstate 95 corridor, where rents are lower.

In Northern Virginia, the third-quarter vacancy rate was 5.2 percent, up from 4.5 percent last year. Rents in Northern Virginia are up slightly at $9.14 a square foot, compared with $8.63 in 2005.

"Vacancy is up as new buildings are delivering, and they're coming on line faster than demand is keeping up," Hartley said.

Big deals for the fourth quarter included Coca-Cola leasing 80,000 square feet of space in Springfield and Amazon.com taking 54,000 square feet in the Route 28 North area.

Much of the development has been spurred, real estate brokers say, by proximity to Washington Dulles International Airport.

"There's retail developing in Loudoun County and following that is the need for distribution hubs so they can get stuff on and off the planes and get the product to their stores," Hartley said.

There is roughly a million square feet of space under construction in Northern Virginia, most of it in the Route 28 corridor, with 48 percent of it pre-leased. One major project under construction in the Route 28 South corridor is the CIA's large power substation near an office building the agency is constructing.

Dana Hedgpeth writes about commercial real estate and economic development. Her e-mail address ishedgpethd@washpost.com.

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