HEARTLAND SNAPSHOT, JUNE 2005

Cleveland Office Market

Northeast Ohio has seen an increase in the sale activity of premier office buildings as REITs, pension funds and other investors are streamlining their real estate holdings, according to Viamonte Lee, research director for Colliers International in Cleveland. In some cases equity firms are consolidating their large real estate portfolios and offloading buildings that are either carrying high vacancies or are located in markets where they don’t have a critical mass of property. In other cases, investors are reducing their real estate holdings because of the lagging performance with respect to other investments in their portfolios.

The research and development market is booming in the Cleveland area, with many developments proposed or underway. The Cleveland Clinic was recently awarded $23.5 million in state grant money to set up an Atrial Fibrillation Innovation Center. “The goal of the grant proposal is to establish Cleveland and Ohio as the world leader in diagnosis and treatment of atrial fibrillation (a rapid and irregular heartbeat),” Lee says. “Because the clinic proposal involves many partners, some of which are located out of state, the award means bringing jobs and expanding businesses to Northeast Ohio.”

The biotech industry is also expanding in Cleveland. “The local life sciences industry is developing into an economically viable business model that has the potential of transforming Northeast Ohio into a global leader in the biotech industry,” Lee says. Case Western Reserve University plans to build more than 100,000 square feet of space for bioscience companies on the site of the former Mt. Sinai Medical Center as part of a massive research park it is developing.

The Cuyahoga County Administration plans to consolidate its more than 40 separate locations downtown into one $100 million headquarters building. The new headquarters could be as large as 600,000 square feet in size.

Some additional developments that are either underway or proposed in Cleveland include the Wolstein East Bank project, a $230 million, 1 million-square-foot waterfront property that is proposed to feature a mix of condominiums and apartments, theater and retail. “This could be a catalyst to bring back a once vibrant entertainment district adjacent to the CBD,” Lee says.

A new convention center is also being planned. One of the two finalist plans would put the $300 to $500 million project behind Tower City, giving it a direct connection to the Cuyahoga  River. The alternative site would involve building on the present convention center location but extending the site north to Lake Erie. Final site selection and financing approval is expected by mid-summer. “The economic impact to the county is expected to be $284 million in sales, $110 million in new wages and 4,200 more jobs,” Lee says.

The $168 million Euclid Corridor project will connect downtown to University Circle, which is unique worldwide for its concentration of leading cultural, educational, medical and social service institutions.

More than $3.5 billion is being invested in current and planned development in downtown Cleveland. The first quarter vacancy rate for the CBD is 23.83 percent, which is an improvement from the first quarter of 2004 at 25.17 percent. CBD Class A vacancy is presently 17 percent compared to 19.37 percent for the first quarter of 2004.

Suburban vacancy has experienced a decrease from 18.74 percent in the first quarter of 2004 to 16.33 percent during the first quarter of this year. Suburban Class A went from 22.5 percent during the first quarter of 2004 to 18.78 percent in the first quarter of 2005.

Developers such as Minshall Stewart Properties, Munsell Realty Advisors, Marin (House of Blues) and Duke Realty are bringing new product to the market.

The area to keep an eye on in the near future is the CBD/Midtown market just by the volume of projects and dollar estimates, Lee says. There is also a suburban building boom taking place along the Interstate 271 corridor. While many suburbs have been struggling to attract development, low interest rates and good location made the difference along the I-271 corridor. The total spending for the construction is expected to be more than $270 million.

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