Baltimore Retail Market SECOND QUARTER | 2017

BEER ME! THE CRAFT BEER REVOLUTION AND ITS IMPACT ON RETAIL REAL ESTATE Mike Ruocco, Senior Real Estate Advisor

In an era when articles are published daily detailing the demise of retail as we know it, several sectors of the retail world are still thriving. Make no mistake, with the growth of online based shopping, Amazon’s recent acquisition of Whole Foods, big box tenants (such as RadioShack, HHGregg, and Payless Shoe Source) shuttering left and right, and malls, the once behemoths of the retail world reeling, an adjustment is certainly looming. I believe we are already seeing the adjustment, perhaps we have just not yet recognized it fully. Bisnow published an article June 27th, 2017 detailing six facts that dispel the myth that the retail sector is struggling. The facts included:

1. National retail rents reached a nine-year high in Q1 2. Major retail brands are still expanding 3. U.S. retailers are leading the pack in international expansion 4. Brick-and-mortar is taking over e-commerce, not vice versa 5. Warren Buffet just bet big on the sector 6. Fundamentals reflect continued strength in the sector

We’d like to add a seventh, the craft beer revolution.

While the retail real estate landscape as a whole evolves, one thing is for sure, the craft beer business is booming and Maryland has shown that there is room for the little guy. Examples of this have included Guinness announcing plans for its $50 million brewery in Southwest Baltimore; Union Craft Brewing purchasing the 138,000 sf former Sears parts warehouse in Hampden with plans to expand their on-going brewing activities in addition to opening the Union Collective, a local business hub that will support their expansion plans and include the presence of Baltimore Whiskey Co., The Charmery, and Earth Treks; and, countless up-and-coming breweries including the likes of Full Tilt Brewing, Monument City, and Heavy Seas succeeding. Brew houses and craft beer concepts have begun filling vacant former Macaroni Grill, Famous Dave’s and Joe’s Crab locations, as well as driving customers to urban redevelopments like the converted fire station, Brew House No. 16 in the Mt. Vernon neighborhood of Baltimore.

For craft brewers, the more options, the better. As with many of us, some days you feel like eating pizza and others perhaps sushi, and that’s ok! In fact, Maryland Comptroller Peter Franchot agrees. Following the announcement of Diageo’s plans to open the Guinness Brewery and Taproom in Relay, Maryland, lawmakers passed the highly criticized House Bill HB1283. Franchot went on to start the Reform on Tap task force which aims to bring together brewers, legislators, wholesalers, and retailers thus reinforcing how important it is for Maryland to assist and not resist an industry of growth in a time of retail brick-and-mortar doom and gloom. (Continued on page 15)

RETAIL SNAPSHOT | 2nd QUARTER 2017

Vacancy3.9% Rate -197,84120.00%YTDVacancy Absorption Rate Avg.$19.24 Rental Rate www.mackenziecommercial.com * All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions, or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 14 Baltimore Retail Market SECOND QUARTER | 2017

THE NUMBERS

Market Direct Direct Absorption Available Average Submarket Bldgs Size SF Vacant SF Vacancy Current YTD SF % Asking Rent Annapolis 811 13,537,076 293,278 2.2% 81,233 122,518 3.4% $23.81 Baltimore City 3,415 26,725,793 977,714 3.7% -20,125 -4,632 5.6% $15.92 Baltimore County East 697 9,599,106 668,163 7.0% -43,540 29,051 9.4% $14.41 Baltimore South 635 10,491,159 808,623 7.7% -16,241 -90,115 8.3% $17.31 Baltimore West 605 10,575,479 234,742 2.2% 31,178 67,750 5.9% $18.42 Carroll County 514 8,106,884 383,882 4.7% 7,410 36,009 5.7% $15.24 Columbia 420 9,085,033 263,790 2.9% 17,010 -1,830 4.1% $32.90 Ft. Meade 364 8,032,024 232,117 2.9% 1,739 62,535 4.2% $21.82 Harford County 850 11,918,861 500,013 4.2% -3,476 15,676 5.9% $22.89 Reisterstown Road Corridor 362 5,985,790 336,031 5.6% -7,701 -452,799 8.0% $20.80 White Marsh / Perry Hall 356 6,285,205 238,176 3.8% -24,578 -20,882 5.0% $17.11 York Road Corridor 690 12,943,562 274,606 2.1% 3,628 38,878 5.0% $23.54 Market Totals 9,719 133,285,972 5,211,135 3.9% 26,537 -197,841 5.7% $19.24

(Continued from page 14)

As quoted in a March 28th 2017 Baltimore Business Journal Article, Franchot went on to say, “These breweries are creating jobs, creating wages, and creating tax revenue to help the city of Baltimore. What Baltimore needs more than anything, more than money, is jobs and wages for their citizens.” Therefore, to see a legislative bill threaten the brewery industry in Maryland is “inexplicable” Franchot commented. House Bill 1283, which was passed by the House of Delegates in March, raises the barrel cap for tap rooms; however, it cuts back operating hours and the ability for the breweries to utilize beer made off site.

Craft Breweries are a microcosm for success. When a person has a passion, they pursue that passion until it becomes their job. The job then drives revenue for the economy while offering an amenity to its residents. As we say here at MacKenzie, “Local Matters,” and I look forward to seeing you at the next local brewery opening in your neighborhood.

www.mackenziecommercial.com * All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions, or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 15 Baltimore RETAIL Market SECOND QUARTER | 2017

Vacancy Continues to Decline DIRECT VACANCYAverage Direct Vacancy % 7% The Baltimore Metro retail market had an average direct vacancy rate of 3.9% this quarter, showing that last quarter’s 6% higher rate of 4.4% was a minor fluke in the steady decrease of vacancy for the past five years. Buildings with the lowest 5% vacancy rates are located along the York Road Corridor and Annapolis, at 2.1% and 2.2% respectively. These have 4% remained the lowest submarkets on average for the past 3% couple years. Reisterstown Road Corridor had an increase in available space with the opening of Foundry Row, but 2% the influx of tenants has pushed the vacancy rate from an Direct Vacancy Vacancy Percent Direct abnormally high 15.7% back down to its current quarter rate 1% of 5.6%. Baltimore South retains the highest vacancy rate of 7.7%. This submarket’s vacancy has steadily increased since 0% late 2014 at 5.8%. 2011 2012 2013 2014 2015 2016 2017

Absorption Levels Out in the 2nd Quarter ABSORPTION Net Direct Absorption 1,000,000 While this quarter’s absorption numbers were positive at 26,537 sf, the year-to-date absorption remains low at 800,000 -197,841 sf for the Baltimore Metro area. In the 2nd Quarter, the most tenant move-ins took place in Annapolis, which had 600,000 81,233 sf of positive absorption (122,518 sf in 2017 thus far). Comparatively, Baltimore County East lost the most tenants 400,000 this quarter, resulting in a negative absorption of -43,540 sf. The main culprits of the loss year-to-date are Reisterstown 200,000 Road Corridor, which saw a drop in absorption in the 1st 0 Quarter, and Baltimore South, which has a net 2017 loss of Net Absorption SFNet Absorption -90,115 sf. Although Reisterstown Road had a challenging -200,000 1st Quarter, it has bounced back with an average occupancy rate of 93.4% this quarter. -400,000 2011 2012 2013 2014 2015 2016 2017

Rental Rates Climb in 2017 ASKING RENTALAverage RATES Asking Rental Rates Asking NNN rental rates averaged around $19.24/sf for the $19.5 Baltimore Metro area as a whole. In the past quarter, retail market rental rates increased by approximately $0.38/sf with an annual $19.0 increase of $0.49/sf. The highest asking rents can be found in Columbia and Annapolis, which average an asking NNN rate of $18.5 $32.90/sf and $23.81/sf, respectively. The best deals can be found in Baltimore County East and Carroll County, which average $18.0 $14.41/sf and $15.24/sf respectively. The biggest change can be seen in the Columbia submarket. In the past year, asking rates $17.5 have gone up $5.59/sf. Similarly, Harford County asking rates Asking Rent/SF have gone from $18.39/sf to $22.89/sf in the past year, rising $17.0 $4.50/sf on average. While rates have fluctuated over the past several years, the current asking NNN rates are the highest they $16.5 have been in many years. 2011 2012 2013 2014 2015 2016 2017 www.mackenziecommercial.com * All information furnished regarding property for sale, rent, exchange or financing is from sources deemed reliable. No representation is made as to the accuracy thereof and all such information is submitted subject to errors, omissions, or changes in conditions, prior sale, lease or withdrawal without notice. All information should be verified to the satisfaction of the person relying thereon. Portions of the base statistics are from CoStar Property data. Data as of 6/30/2017. 16 Baltimore Retail Market SECOND QUARTER | 2017

NEWS Highlights • Duck Donuts opened at 5272 Campbell Boulevard in White Marsh • Ruth Shaw, a clothing retailer at the Village of Cross Keys, is at the end of June. They took 1,300 sf in the Nottingham Square relocating to 3,000 sf at the Towson mall early Fall 2017. Shopping Center. • Cilantro, a Mediterranean restaurant located in Owings Mills, opened • Baltimore in a Box is moving from Highlandtown to 857 W. 36th a second location at 30 Light Street that is 1,400 sf with 45 seats. Street at The Avenue in Hampden. • The Walmart at 8730 Liberty Road in Randallstown sold for $28.5 • Mouth Party Caramels signed a lease for 8,000 sf at 1946 million in May. The building is 160,908 sf. Walmart will continue to Greenspring Drive for office and manufacturing space with a small lease the space. retail component. • HomeGoods recently signed a deal at Foundry Row. They plan to • Several new retail leases were signed at the Mall in Columbia be open by the end of 2017. They will move into the old Sports for Shake Shake, Uncle Julio’s Rio Grande Café, Main Event Authority space. Entertainment, Barnes & Noble, Z Gallerie home furnishings, and The Walrus Oyster & Ale House. • Under Armour, Kate Spade, and Polo Ralph Lauren have all moved to Arundel Mills Mall. • Mutiny Pirate Bar & Island Grille is moving to 33 Magothy Beach Road in Pasadena, and opening a new location at 7190 Troy Hill • Flynn O’Hara Uniforms is moving from Loch Raven Plaza in Towson Drive in Elkridge for 4,200 sf with an outdoor area. to North Plaza Shopping Center in Parkville. They recently signed a lease for 5,338 sf at 8898 Waltham Woods Road. • Sears has announced they are closing stores at 126 Shawan Road in Hunt Valley and 17318 Valley Mall Road in Hagerstown. • Payless has closed four Maryland locations as part of their newest bankruptcy plan. Locations include Mountain Road in Glen Burnie, • Grabbagreen, an Arizona-based food/juice restaurant chain, will Forest Park Village in Forestville, Federal Plaza in Rockville, and open a 2,100 sf space in Hunt Valley Towne Centre this summer, Eastover Shopping Center in Oxon Hill. along with Echo Frezco, a Mexican restaurant.

Notable Transactions Lease

Location Submarket Tenant Amount Leased SF 9220 Baltimore National Pike Columbia Dick’s Sporting Goods 42,959 sf

8825 Centre Park Drive Columbia IHOP 4,977 sf

914 Bay Ridge Road Annapolis Wellspring Therapy 1,820 sf

6080 Falls Road Towson Serenity Nails 1,329 sf

Sale Location Submarket Price PSF Building Size 8730 Liberty Road Reisterstown Road Corridor $28,500,000 $177.12/sf 160,908 sf

9612 Reisterstown Road Reisterstown Road Corridor $2,037,294 $400.41/sf 5,088 sf

7010 Ritchie Highway 2 Route 2 Corridor $1,920,000 $469.32/sf 4,091 sf

2029 West Street Annapolis $1,850,000 $349.06/sf 5,300 sf

(1) Portfolio Sales; (2) Investment Sales