NoVa and Baltimore Retail: Only One is a Buy

Ten-X Chief Economist Peter Muoio

WASHINGTON, DC—There are ten cities that Irvine, CA-based Ten-X, a market research company and GlobeSt.com Thought Leader, has rated a “buy” based on the performance of its retail real estate in its newly-released US Retail Market Outlook. There are another ten that the company has rated a “sell.” Lucky Mid-Atlantic — it has one city, or area, in each category. Northern Virginia is among the buy cities, a group that also includes Miami, Fort Lauderdale, FL, Austin, Texas and Los Angeles. Baltimore is in the sell category, along with Central New Jersey, Detroit, Cleveland and Memphis, TN. The buy markets are cities and regions in which Ten-X believes investors would do well to acquire retail assets now. The sell markets, obviously, are those places where investors should sell. Ten-X provides metrics to back both sets of projections. As it happens, the gap between fundamentals in Baltimore and Northern Virginia is not impossibly wide. Both have growing populations, for instance, and both are expected to see short-term decline in retail vacancies. But ultimately Northern Virginia is the much stronger retail market, Ten-X Chief Economist Peter Muoio told GlobeSt.com. Both will see a drop in vacancies over the next two years but Baltimore has some 500,000 square feet of retail space coming online in 2019, which will push the vacancy rate to the highest levels seen since 2011. “In Northern Virginia, we see retail NOI growing nearly 5% annually through 2018 before leveling out; in Baltimore, our projected NOI growth averages a meager 1.1% annually.” The Numbers In the case of Northern Virginia, 2015′s final effective rents per square foot were around $26.04 and its forecast effective rents for 2019 are $29.81 per square foot. In Baltimore those numbers are $20.29 and $21.33 respectively. The big differentiator, as Muoio noted, are the retail real estate pipelines.  Northern Virginia’s has diminished and by 2019 vacancies will reach the low-4% range while rent growth will drive a near-5% NOI growth. Then, both rent growth and NOIs are likely to plateau in 2019. In Baltimore, retail vacancies are likely to shrink slightly through 2018. When the 500,000 square feet of retail space comes online in 2019 vacancy rates are projected to jump to the mid-7% range.