Dennis Burnside Managing Partner Colliers International, Cleveland Office

The Cleveland market, much like the majority of the country, has experienced little or no growth in the office sector during the last 2 years. Real rental rates have decreased by 8 percent to 10 percent, while vacancies have increased in nearly all of the submarkets. However, there has been an increase in investor interest evidenced by the number of large asset sales during the last 6 to 12 months.

“Since there has been virtually no new speculative development, the market is poised to show positive absorption when demand increases,” says Dennis Burnside, managing director of Colliers International’s Cleveland office. Tenants, such as law firms, are moving around and looking for new locations, but no significant positive absorption has recently occurred. Some tenants are going to the market early due to their desire to take advantage of soft market conditions. “Landlords are becoming more aggressive in terms of free rent and tenant improvements, but they are not losing sight of the long-term effects on values,” he says.

No significant office developments are planned until the market improves. Growth should, however, pick up in the suburban markets — particularly in the western suburbs. These suburbs offer available and reasonably priced land, decent demand, residential growth and in-place infrastructure. The close access to the central business district (CBD) is also a factor.

Recent acquisitions include Houston-based Boxer Properties’ purchase of the former LTV Headquarters and 55 Erieview Plaza in the CBD; New York-based Ashley Capital, in partnership with the Galbreath Family, acquired the Bank One building in the CBD; The Reichman family of Toronto bought the McDonald Investment building in the CBD; Atlanta-based Wells Real Estate Funds acquired the Eastpointe buildings in Mayfield Heights; and Baltimore-based Minshall Properties acquired the Tower at Erieview and Galleria in the CBD.

Another active player in the market is Progressive Insurance, which recently absorbed 250,000 square feet in the fourth quarter of 2002 in the Landerbrook submarket.

MBNA is constructing a 175,000-square-foot building on its campus in Beachwood, and Cisco is building a 120,000-square-foot build-to-suit in Richfield. Other leases include Novastar’s lease of 60,000 square feet at 6200 Oak Tree in Independence; Sprint’s lease of 25,000 square feet at Essex Place; and McKinsey & Company’s lease of 40,000 square feet in the BP Building.

“Another trend that is positively impacting the market is the growth of various schools and colleges,” Burnside says. Cleveland State University (CSU) has leased 25,000 square feet in the Keith Building in the Playhouse Square area, and CSU has also committed to another 35,000 square feet in the western suburbs. Cuyahoga Community College has committed to a 30,000-square-foot build-to-suit in Westlake. The University of Phoenix leased 23,000 square feet, its second location in the area, at Crown Center in Independence. Duke Realty is building an approximately 30,000-square-foot building for Indiana Wesleyan on Rockside Road in Independence.

“Potentially active submarkets include the western suburban market, the CBD, and Chagrin — particularly the Chagrin Highlands,” Burnside says.

The western suburbs are also experiencing growth due to the migration of residential housing, and proximity to the airport and the CBD.

The CBD is poised to experience positive growth with the availability of quality space and the prospect of the Euclid Avenue revitalization and new Convention Center. “Finally, the recognition from all levels — including civic groups, corporations, and local governments — that it is in the best interest of the region to have a vibrant CBD, bodes well for the downtown,” Burnside says.

Chagrin Highlands is a desirable location because of its freeway access, the existing infrastructure, corporate tenants and a high-end residential component.

Anticipation is in the air as the market looks to be an alternative for the biomedical industry due to its world-class medical centers, such as Cleveland Clinic, University Hospitals and Case Western Reserve. “Cleveland remains a terrific price value and will be an attractive alternative for any regional expansion,” Burnside says.

“Additionally, Cleveland offers an employable work force, a competitive cost of living, and a wonderful quality of life in a central geographic location. Cleveland and northeast Ohio are in a great position to take advantage of any economic turnaround.”

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