HEARTLAND SNAPSHOT, NOVEMBER 2007

Cincinnati Office Market

The Cincinnati real estate market is currently experiencing strategic office developments in infill locations within the Interstate 275 loop.  Excluding the Centre Pointe development in West Chester, there is limited interest in building speculative office product outside this loop.  The majority of new office development is focusing on the infill areas where the access and amenities are paramount, while assemblage issues will keep the competition low.  Greenfield development is likely not going to occur for quite some time as the market absorbs the existing vacancies.

Office condo development has come to a halt with very few new developments coming out of the ground.  Again, tight infill locations with close proximity to executive housing will attract select developments, but not at the pace the market experienced in prior years.

Two major developments are under construction near the central business district (CBD). The first is Neyer Properties’ Keystone Parke, which is located at Interstate 71 and Dana Avenue. The first of three buildings, a 65,000-square-foot structure with a parking garage, is underway. This will be followed by 160,000 and 240,000-square-foot buildings, as well as additional parking. 

The other major development is a new build-to-suit office building for Humana, which is under construction next to the company’s current location on Eden Park Drive off I-71. Humana will take occupancy of its new 250,000-square-foot headquarters in late 2008, leaving a huge vacancy in the Grand Baldwin Building.

Other significant developments include Linden Pointe, located north of downtown off I-71 and the Norwood Lateral. The first building, totaling 94,000 square feet, will be complete in early 2008 and already has a letter of intent from Steed Hammond Paul.  This mixed-use, campus-style development can accommodate up to 580,000 square feet of commercial space.

The newest developments in the white-hot Kenwood, Ohio, submarket are Redstone and Kenwood Towne Place, located at I-71 and Montgomery Road.  Redstone is a 160,000-square-foot office building anchored by CNG Corporation.  Kenwood Towne Place is a mixed-use development anchored by Crate & Barrel that will consist of 230,000 square feet of office space above the retail. UBS already committed to occupy 35,000 square feet in the office component.

In West Chester, Ohio, Center Pointe VI, a 136,000-square-foot building, will be complete in the spring of 2008. Center Pointe V was just finished; AK Steel leased the entire 136,000-square-foot building.

The I-71 corridor, specifically Kenwood and Midtown, has always been the darling of the development market.  Its access to the eastern side of the market, as well as its highly educated work force, density of decision makers and stock of executive housing, consistently draws interest.

There is a possibility that the new construction along I-71 may pull tenants out of the downtown market.  Humana’s departure leaves a huge vacancy in the Baldwin Building, increasing vacancy rates in the CBD – periphery market. 

The CBD, while not experiencing any new deals to the market, has benefited from a number of long term renewals of major tenants. Western Southern’s 303 Broadway at Queen City Square, downtown’s first new high rise in 16 years, is largely occupied after KeyBank Real Estate Capital signed for the top two floors. The second phase of this project, an 800,000-square-foot, 37-story tower, is now being marketed nationally to secure an anchor tenant. Opportunities continue to be created for owners of quality Class B properties, as functionally obsolete office product that is converted to residential use sends displaced tenants out seeking new space. The nearly complete Fountain Square renovation has attracted many new restaurants and entertainment venues to the center city, which, along with the city’s residential development, has created a more vibrant post-work environment.

Cincinnati continues to attract IT companies due to the region’s highly educated workforce, pro-business environment and low cost of living/high quality of life. CitiGroup, which selected the Blue Ash submarket to house its IT support center, has created 1,100 new jobs to the region.  Recently, Tata Consulting, the India-based IT consulting conglomerate, narrowed its search to two suburban locations for its North American headquarters, and is expected to bring an additional 700 jobs to the area.

The influx of new employers to the area, combined with many new buildings coming online pre-leased, has lowered the vacancy rate in Cincinnati. Currently, the vacancy rate ranges from 11.3 percent to 24 percent depending on the submarket, but averages 19.5 percent for the city overall. 

Rental rates are also on the rise, with rates for Class A properties ranging from $19 to $25 per square foot. After rising 2.2 percent from this time last year, rates are expected to increase a total of 3.7 percent in 2007.

— Doug Altemuehly and John Schnek are senior sales vice presidents with Cincinnati-based Grubb & Ellis|West Shell Commercial. Additional information provided by Marcus & Millichap’s Office Research Market Report.



©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.