Although office vacancy in the Baltimore region continues to hold steady, the rates in the Baltimore-Washington corridor and Annapolis submarkets have dropped to record lows.

According to a preliminary second-quarter report from MacKenzie/Cushman & Wakefield, overall direct office vacancy in Baltimore is 12.5 percent, a slight decline from 12.7 percent in the first quarter of this year.

But rates in the Baltimore-Washington International Airport and Annapolis areas have dipped more than a point from the first three months of 2005 to 5.3 percent and 5.9 percent respectively, the report shows. And that’s compared to BWI’s 7.8 percent and Annapolis’ 9.6 percent office vacancy in the second quarter of 2004.

“The Annapolis market continues to excite everybody,” said J. Scott Wimbrow, senior vice president and principal of MacKenzie/Cushman & Wakefield, a Lutherville-based commercial real estate firm. “Limited development and a lot of demand continues to add to the low numbers.”

The government and defense contractors are still fueling the demand in both the corridor and Annapolis specifically, commercial real estate brokers said.

With places such as National Business Park – a highly secure office park near BWI Airport – filling up, more defense-related tenants are turning to Annapolis, Wimbrow said.

And while long-term development projects are in the pipeline, few companies are able to build office complexes quickly enough in the Annapolis area to meet the huge demand, the principal continued.

James P. Lighthizer, a principal with Chesapeake Real Estate Group LLC, said he sees little sign of the defense momentum slowing – a trend he believes is driving up land prices and office rates.

With the recommendations from the federal Base Realignment and Closure Commission favoring Maryland and homeland security on the rise, the Baltimore-Washington corridor is expected to be buzzing with activity, Lighthizer said.

“I don’t think there’s a lot of other demand outside of the defense industry,” he said.

In Baltimore City, commercial real estate brokers said activity remains flat in the central business district.

According to MacKenzie, direct office vacancy in the central business is the same as 12.5 percent a year ago.

“The word flat doesn’t do it justice,” said Gail Chrzan, a commercial real estate broker for CB Richard Ellis Inc. in Baltimore. “I don’t think we probably saw a month ago, it just got very quiet.”

Brokers are bracing themselves, wondering whether this slowdown in activity is cyclical due to relaxed summer schedules and mentalities, or whether it is a preview of what’s to come later this year in Baltimore.