Real estate is rolling along in the Ohio valley. Strong regional economies are driving multi-faceted commercial real estate growth in the Cleveland, Columbus and Cincinnati, Ohio markets. Central to the expansion are aggressive downtown renovation programs. Also contributing to expansion is the mushrooming suburban development in many submarkets.
Cleveland Downtown Cleveland, like other cities around the nation, is undergoing a dramatic revival. The infusion of new projects and amenities is expected to bolster the office market segment, according to David Browning, managing director of Los Angeles-based CB Richard Ellis. Downtown's current office vacancy rate of 11.05% hasn't moved much in the past year, says Browning. He lists new stadiums for the Browns football and Indians baseball teams; new residential construction and renovation; and a new Science Center as some of the projects transforming the area.
New projects bolster office space Victor Voinovich, president and CEO of Cleveland-based Victor Voinovich Co., cited the downtown office market's current Class-A vacancy rate at 7%. Browning says the 700,000 sq. ft. of sublet space on the market may increase that percentage. To add to the problem, Voinovich says 800,000 sq. ft. of newly constructed and vacated space is expected downtown between 2000 and 2001.
Wayne Lingafelter, senior vice president of Indianapolis-based Duke-Weeks Realty Corp., says downtown sublet space and corporate downsizing have led to negative office space absorption. However, "It's just a temporary setback," he explains. "Downtown will recover and be a viable option for office tenants."
Voinovich predicts a stable office market with no upward or downward pressure and rents staying around the present gross rental rate of $21 per sq. ft. to $22 per sq. ft. for Class-A space. Browning looks for positive absorption and sublet space to lease up in 18 months even with abundant sublease space in the Cleveland suburban office market. Twelve buildings with 750,000 sq. ft. of speculative space are under construction, and 24 more are in the planning stages. He cites an overall vacancy rate of 10.26%.
Browning lists the south suburban market with 400,000 sq. ft. and the east suburban submarket with 200,000 sq. ft. as the office construction hot spots. Voinovich says the major activity in northeastern Ohio is the 680-acre Chagrin Highlands, the largest mixed-use development in the area. He puts the suburban Class-A vacancy rate at 10% with gross rental rates at $22 per sq. ft. to $23 per sq. ft.
Looking ahead, Browning predicts developer will be more cautious and that less than half of the 24 buildings planned will actually be built. Browning, Lingafelter and Voinovich all agree on a trend toward build-to-suit.
Industrial market moving along According to Ken Fleming, vice president and director at Northbrook, Ill.-based Grubb & Ellis, Cleveland's industrial market is tight with the current vacancy rate at 5.2%. He expects 2.1 million sq. ft. of new space under construction will loosen the market.
Spencer Pisczak, senior vice president at Duke-Weeks, says there is growth in the industrial segment. First-half gross absorption was 2 million sq. ft. with another 500,000 sq. ft. to 1 million sq. ft. to be added in the second half of 1999. Vacancy rates for the six industrial submarkets average 10% to 12%, he says.
Fleming expects the suburban industrial market to grow through 2000, although at a slower rate than 1999, while Pisczak sees a slowdown over the next 18 months.
But unlike the industrial market, there is no sign that Cleveland's retail market is slowing down. According to Browning, the city's retail is very active with an overall vacancy rate of 8.1%, down from 9% in 1998. Browning sees that trend continuing with big-box retailers making commitments that will drive the Cleveland market.
Columbus New downtown growth is making Columbus more attractive according to Columbus, Ohio-based NAI Welsh's 1999 Columbus Market Update Report. Construction on the 95-acre arena district that will include a new stadium for the Columbus Bluejackets NHL hockey team; 200,000 sq. ft. to 300,000 sq. ft. of retail and entertainment space; 1.3 million sq. ft. of office space and approximately 300 apartments, is part of this growth.
Office market improving All is not rosy in the downtown office market, but it is improving. According to NAI Welsh, there was negative absorption of 6,900 sq. ft. downtown in the first half of 1999. Despite the new development, Don Hunter, senior vice president at Duke-Weeks, sees low demand and low growth with vacancies below 6%.
Don Huffner, senior managing director at Los Angeles-based CB Richard Ellis, believes the situation downtown will get better if the economy remains strong. Jim Miller, senior vice president of Columbus, Ohio-based Pizzuti Cos., says tenants will have choices for new space - something they haven't had in a while.
Moving to the suburban office market, Richard Gatto, executive vice president of The Alter Group, Lincolnwood, Ill., says, "It's like a party that just won't end." According to Gatto, the market absorbed 1.3 million sq. ft. of space in 1998 and just under 600,000 sq. ft. in the first half of 1999.
Hunter puts 1998 absorption figures at 1.83 million sq. ft. and 800,000 sq. ft. for the first half of 1999. He says Dublin, New Albany and Easton are the strongest submarkets while Miller adds Hilliard as an area to watch over the next two years.
Industrial area attracts companies The Columbus industrial market is also doing well. The city is attractive to companies because of its central location, low land costs and economic incentives, says Huffner.
According to Huffner, the industrial vacancy rate for the first half of 1999 was 7.27% with 2 million sq. ft. of space under construction. The southeast submarket is the area with the largest growth overall. The majority of the space being constructed is bulk warehousing in the 250,000 sq. ft. to 500,000 sq. ft. range, he says. Huffner sees stability ahead with vacancy rates edging downward and rents flattening.
According to Deborah Daly, associate at CB Richard Ellis, big-box construction such as Kohl's, Wal-Mart, Target, Meijer, Home Depot and Lowe's Hardware have dominated the Columbus retail market. Daly says the hot spots are New Albany, Dublin, Gehanna, Hilliard, and Worthington.
Cincinnati Metropolitan Cincinnati is also healthy and growing steadily. The downtown office market has vacancies ranging from 3% to 5% for Class-A space to 14.5% for Class-B space, according to Alan Piker, president of Cincinnati-based Piker-CRESA.
With 300,000 sq. ft. of subleased space currently on the downtown market, Piker expects Class-A vacancies to rise to 6%. Gross rental rates are currently in the $23 per sq. ft. to $24 per sq. ft. range for Class-A space, because of negative absorption in first-half 1999 of 200,000 sq. ft.
Suburbs, industrial expanding Ken Schuermann, senior vice president of Duke-Weeks, puts Cincinnati's suburban office market new construction figure at 1 million sq. ft., with another 500,000 sq. ft. in the planning stages. Schuermann puts suburban office absorption at approximately 1 million sq. ft. a year with 600,000 sq. ft. for the period from January through August 1999 with the Class-A vacancy rate at 7%.
Piker puts the Class-A vacancy rate at 10.7% with supply exceeding demand in the northeast submarket, which has a Class-A vacancy rate of 16.5%. The healthiest submarket, Piker says, is Blue Ash, with a 9.5% vacancy rate. Schuermann disagrees and says rates in Blue Ash have risen from 9.1% in 1998 to 12.08% in third-quarter 1999, due to Procter & Gamble vacating 45,000 sq. ft.
According to Piker, Cincinnati has 4 million sq. ft. of industrial space scheduled for construction in 1999 and another 2.5 million sq. ft. in 2000. He puts the vacancy rate at 6.7% with net rates at $2.90 per sq. ft. to $3.25 per sq. ft. for Class-A bulk space.
Butler County also is an active center for retail development, says Ken Murowski, managing director of CB Richard Ellis. However, he continues, Boone County is the fastest-growing retail area in Greater Cincinnati. One recent development was the Target center on Houston Road with PetsMart as co-tenant.
Experts tend to agree that Ohio's Cleveland, Columbus and Cincinnati markets will continue to grow as long as the economy remains strong. With aggressive downtown renovation, good office and industrial space absorption, and active retail a slowdown is not foreseen.