Vacancy Signs

More Than a Million Square Feet of Office Space Awaits Businesses, Workers and Dollars

By Douglas Tallman | Photography by Turner Photography Studio | Posted on 06.01.15 – Feature, People & Places

Take a drive through any of Frederick County’s business parks and you will likely see, among many successful, growing businesses, an equal number of empty buildings and spaces being promoted for lease. You will also see plenty of empty parking spaces on well-worn lots, and perhaps other scant signs of a much more vibrant past.

Thanks to the recession, large office buildings around Frederick are barely filled. Jobs that could be here aren’t. To David Palank, it’s a sign of the tertiary— or smaller —office market.

“When the market slows down, what happens is the tertiary market slows down. It’s one of the first to soften and it’s one of the last to pick up,” says Palank, senior vice president at CBRE in Bethesda. CBRE is a huge real estate services company, which handles about 600,000 square feet in and around Frederick.

Richard Griffin, Frederick city’s economic development director, and Helen Propheter, the county’s manager of business retention and development, are selling Frederick to help find companies to move in, add cubicles and fill empty parking lots. “We’re not commercial brokers. We do not broker property. We just want business to locate here,” says Griffin.

With nearly 8.4 million square feet of office space, the Frederick market has 1.1 million square feet, or 13.5 percent, vacant.

Frederick’s office vacancy rate is in the middle of the pack among the communities that make up the D.C. market, according to CoStar, a company based in Washington, D.C., that supplies information and analytics on commercial real estate.

With nearly 8.4 million square feet of office space, the Frederick market has 1.1 million square feet, or 13.5 percent, vacant, according to CoStar. That rate is lower than some nearby markets that might compete with Frederick. For example, Germantown’s vacancy rate is 16.1 percent, and the vacancy rate in Rosslyn, Va., is 28.7 percent, according to the CoStar report.

One thing Frederick has going for it is that its quoted rate for office space places it among the least expensive markets in the region. At an average of $20.98 per square foot, Frederick beats Germantown’s $24.45 and Gaithersburg’s $22.23. In Virginia, Rosslyn is $39.99 and Fairfax City is $22.88. “We’ve got quite a bang for our buck,” Propheter says.

Now, with an economy tenuously trying to advance, the city needs to add 700,000 square feet between 2015 and 2030.

Things were so much different before the Great Recession hit. Frederick had big employers like JPMorgan Chase (gone in 2010) and CitiMortgage (closed in 2011). Bank of America downsized and Bechtel is mostly pulling out.

Before the recession, BBPC Associates, consultants based in Annapolis, told Frederick city’s leaders they needed to add 2 million square feet of office space between 2007 and 2020. The prognostications came before the subprime mortgage crisis evaporated capital.

Now, with an economy tenuously trying to advance, the city needs to add 700,000 square feet between 2015 and 2030, according to an October report from the Sage Policy Group, a Baltimore-based think tank led by noted economist Anirban Basu. Or in Palank’s view: “First there was the economic downturn, then there was all this space in the market. At the same time, there wasn’t an economic engine to drive new leasing.”

CHANGING TIMES

In some ways, 5280 Corporate Drive represents the region’s new normal. Once, a CitiMortgage call center filled the 211,000-square-foot buidling. Now, it has 120,000 square feet leased with four tenants. CBRE is trying to fill the building.

Not only has capital dried up, but the region faces other challenges, Basu notes. The federal government allocates less space per worker. The region is facing competition from Northern Virginia and Montgomery County, reducing demand for space in the city, at least over the near term, the Sage report notes.

“The top four employers, which collectively represented approximately 21,000 jobs in 2013, are all either attached to government or healthcare.”

Another effect of the recession, Sage says, is that Frederick city employment is more dependent on institutional work, especially government jobs. “The top four employers, which collectively represented approximately 21,000 jobs in 2013, are all either attached to government or healthcare,” according to the report.

Using Metropolitan Washington Council of Governments data, Sage estimates the county will add 6,100 jobs between 2015 and 2030. The city will get about three-quarters of them, or about 4,500.

To Griffin, the last three quarters have been positive, and one of the biggest headlines has been the November announcement that AstraZeneca, headquartered in London, will expand its biologics manufacturing center on Research Drive, spending $200 million or more. The company said the project will add 300 jobs and 40,000 square feet of space to its Frederick site, which already has more than 400,000 square feet of space. “Companies don’t make that kind of investment unless they see a benefit,” Grifffin says.

He also pointed out the renovation of the long-vacant Union Mills property on East Patrick Street. He said an information technology firm is looking to move Downtown and a pharmaceutical company is looking at East Street.

Selling the county and the city are easy, Propheter and Griffin say.

“We get them Downtown for lunch and they fall in love with Frederick,” Griffin says of company executives who arrive with an inkling to relocate to Frederick. Says Propheter: “If they like golf courses, we take them to golf courses. If they like history, we show them Frederick’s historical sites.” This part of the sales pitch is quality of life. “You can live and work here, and at the end of day, still attend kids’ activities,” Propheter says.

Palank sees another attraction to moving a business to Frederick: the diversity of the labor force. A company can find a top executive, but a company can also find workers who won’t expect the big salaries that come with Montgomery County positions, he says.

WORKING TOGETHER

The city and county work together, Griffin and Propheter say, showing off each other’s properties when a potential client comes to town. “We are happy to see office space full again,” Griffin says.

The city and county can then add dollars and sense.

Frederick County has no business property tax, something Frederick city soon will be able to boast to businesses, as well. That can be an important savings to a company, Propheter says.

And then there’s the county’s new jobs tax credit, which can slice up to 52 percent off a property tax increase on a business that adds 5,000 square feet expands its work force by 25 jobs over two years.

With higher rates in Montgomery County, Frederick’s effort does not target the southern neighbor specifically, Griffin and Propheter say. “We’re not poaching,” she says. The two counties work together. “What’s good for one is good for the state of Maryland.”

Besides, some companies aren’t a good fit for Frederick, she says. “If they need to be by NIH [the National Institutes of Health in Bethesda], we can’t serve them,” Propheter says.

To Griffin, however, his first job is to retain the businesses that are already here. He looks at the Sage report, which says Frederick city has more than 3,000 businesses. If half of them add a job, that’s 1,500 jobs … and will go a long way to filling those million square feet.