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The Maryland commercial real estate market remained sluggish during the first quarter, but stronger leasing activity slowly is helping absorb the supply of office space left empty since the recession started, according to the latest reports.

New leases in the Washington suburbs are beginning to fill up some recently completed buildings after a prolonged period when much of the market action centered on tenants angling for better terms from landlords.

"After three quarters during which renewals accounted for half of all lease transactions, the first quarter saw [that] drop to 30 percent, representing significant new growth for the first time since the onset of the recession," CB Richard Ellis reported.

The brokerage firm noted that federal agency leasing continues to be the main driver in the Washington area, especially by the Food and Drug Administration, which signed three major leases totaling about 193,000 square feet during the quarter. But that was more than offset in the Bethesda-Chevy Chase submarket, where several major private-sector employers gave up large blocks of space in headquarters relocation moves.

Suburban office space absorption was negative 82,000 square feet, according to Cassidy Turley. But the firm said that is "a dramatic improvement from the negative 423,000 square feet recorded one year ago."

Notable vacancies in the quarter cited by a Delta Associates/Transwestern report included Chevy Chase Bank, now owned by Capital One, which gave up its 250,000-square-foot headquarters in Bethesda; Vizada, which vacated 38,000 square feet in Rockville; and MedStar Research Institute, which left a 28,000-square-foot hole to fill in College Park.

The downturn in Bethesda-Chevy Chase will continue this year with CoStar Group planning to move to Washington from 65,000 square feet at 2 Bethesda Metro Center during the third quarter, Delta/Transwestern reported. Hanger Orthopedic also plans to move its headquarters to Austin, Texas, in the third quarter, leaving about 60,000 square feet in Bethesda.

The report also noted the largest block of available space in the Maryland suburbs is 294,000 square feet at 6710 Rockledge Drive in the North Bethesda-Potomac submarket. IBM, which leases the entire building, will either downsize at this location or vacate, the report said.

With no new construction and 330,000 square feet of new space leased during the quarter, the vacancy rate increased only 20 basis points to 15.4 percent compared with the previous three months, Cassidy reported.

The situation should improve for landlords through 2011, as there are no new buildings in the pipeline, the company said.

But tenants still are in a position to bargain for concessions and the office market still is recovering from the loss of 22,000 square feet in suburban Maryland 2009, the report said.

Cassidy concluded that "while this trough of new supply should help stabilize vacancy this year, numerous space options are still available. Thus, tenants will remain in the driver's seat for at least another year in Suburban Maryland."

Baltimore region waits for BRAC payoff

The Baltimore office market is primed for a resurgence from the Pentagon's Base Realignment and Closure program, but demand turned negative in the first quarter, according to the Delta/Transwestern report.

The market essentially is flat, the report said. Net absorption for the period was negative 93,000 square feet, compared with positive 91,000 square feet for all of 2009. That compares with the 10-year quarterly average absorption of 450,000 square feet and the 10-year annual average of 1.8 million square feet.

The Baltimore region's overall vacancy rate climbed to 14.5 percent, up from 12 percent a year ago. The construction pipeline pre-lease rate fell to 31 percent, down from 52 percent during the first quarter of 2009.

But a precipitous drop in rents has slowed, with rates down only 2.7 percent, compared with a drop of 5.2 percent in 2009.

"Although BRAC has created leasing demand from contractors, most tenants remain frozen in leasing decisions, as they wait for an improving economic climate," the report said.

But the Delta/Transwestern forecast said vacancy rates should recover slowly through next year as more of the 25,000 Pentagon and military contractor jobs predicted under BRAC come to the region by September 2011, when the program is scheduled for full implementation.

The report said that "this has already [begun] and will continue to lure contractors. We believe leasing due to BRAC will increase as the September 2011 deadline gets closer."

One sign of things to come is in Harford County, where the vacancy rate stood at only 6.4 percent at the end of the first quarter, down from 10.1 percent at the end of 2007. With thousands of new jobs coming to Aberdeen Proving Ground, the county showed positive absorption of 65,000 square feet during the first quarter.

Real Estate Games set for May 21

The Maryland/DC/Northern Virginia Chapter of the Society of Industrial and Office Realtors has partnered with NAIOP-MD to sponsor the 2010 Real Estate Games, scheduled for May 21 at the Community College of Baltimore County in Catonsville.

Local commercial real estate organizations and professionals, plus those affiliated with the industry, are encouraged to participate in the Olympic-style competition featuring events including basketball, chair hockey, dodge ball, tennis and tug-of-war, among others. The event will benefit the Juvenile Diabetes Research Foundation.

"Our industry is well-known for the friendly rivalries and camaraderie that exists among competing organizations, and the Real Estate Games provide us with another opportunity to join together for a worthwhile cause," said Karl Lehmann, president of the society chapter and senior vice president of Preston Partners of Lutherville, in a statement.

Information: Beth Prensky, 410-636-8080; Jim Lighthizer, 443-883-8171; or Scott Manhoff, 410-825-1980.

Grove Park apartment complex put on market in Gaithersburg

Jones Lang LaSalle announced the sales listing of the Grove Park apartment community, a 684-unit complex in Gaithersburg.

A joint venture of Federal Capital Partners of Washington and Angelo Gordon of New York acquired the 40-acre community in 2006 and is offering assumable financing of $63 million interest-only through December 2016.

The Jones Lang Lasalle investment sales team of Al Cissel and Scott Melnick announced the listing less than a week after joining the firm.

"The Grove Park apartment complex is a well-located, income-producing asset that is sure to appeal to a wide scope of potential investors," Melnick said in a statement. "Federal Capital Partners has made numerous renovations to the property, which is being offered at a significant discount to replacement cost."

The complex, at the corner of Quince Orchard and Clopper roads, is 95 percent leased. It underwent $21 million in renovations from 2002 through 2008.

Want a McDonald's in Rockville? Ground lease going for $2.35M

Marcus & Millichap Real Estate Investment Services of Washington, D.C., has listed a McDonald's ground lease in Rockville for $2.35 million.

The McDonald's was developed in 1998 and covers 3,657 square feet on a 1.01 acre lot. The property is a low-risk investment, according to Marcus & Millichap, because of its highly desired location and Standard & Poor's A-rated tenant.

"Single tenant net leased retail properties have been among the most sought after real estate product for the past two years," said the firm's Peter Snell in a statement.

Commercial real estate news items may be mailed to: Steve Monroe, The Business Gazette, 9030 Comprint Court, Gaithersburg, MD 20877; e-mailed to smonroe@gazette.net; or faxed to 301-670-7183.