HEARTLAND SNAPSHOT, OCTOBER 2005

Cleveland Office Market

Currently, the biggest happening in the Cleveland office market is the trading of the city's two 1 million-plus square-foot trophy buildings, according to Robert Roe, president of The Staubach Company — Great Lakes Region in Cleveland. “BP Tower recently sold for $141.25 million to the Harbor Group out of Norfolk, Virginia,” he says. “Key Tower is rumored to be close to a deal with The Wells Funds out of Georgia and could transfer in 2005.” In another transaction, K&D Group acquired the Reserve Square multi-use residential, retail and office complex for $39.5 million.

The Cleveland central business district (CBD) has generally stabilized from a negative absorption trend as tenants have been able to trade up in class or stature of building during the past 36 months of a very soft real estate market. Currently, Class A office space in Cleveland leases for $17.50 to $21 per square foot.

A noteworthy event took place when the government reversed itself from a recommendation of taking 1,500 jobs out of Cleveland for the Department of Finance and announced they would likely add another 500 jobs to the area. OfficeMax announced the consolidation of 1,500 people to a new headquarters in Chicago, taking 600 jobs out of Cleveland. “This will vacate a 225,000 square-foot suburban office building in the eastern suburbs of Cleveland and the single largest contiguous space available in the suburbs in the past decade,” Roe says.

There has not been much new office development this year in the Cleveland area. The biggest event has been Cuyahoga County's purchase of the former Cleveland Trust Rotunda and Ameritrust Tower, which is located on the corner of East Ninth Street and Euclid Avenue. The purchase was approved by Cuyahoga County and its Board of Commissioners the first week of September. “The county is still undecided on whether to raze the majority of the complex or do an adaptive re-use,” Roe says. “In either event, the county will consolidate its headquarters and administrative functions into approximately 600,000 square feet.”

The new development taking place in the Cleveland area has been centered on retail lifestyle centers. In the western suburbs, the retail, residential and office development at Crocker Park opened in the fall and has been a large success, according to Roe. The East Fourth Street area between Euclid Avenue and Prospect Avenue in the CBD is an urban lifestyle center with restaurants, retail and new multi-family development, featuring the new House of Blues Cleveland. First Interstate has begun the construction process on Steelyard Commons, an urban retail development.

The eastern submarket has come back and vacancy has decreased. The bellwether market for the Cleveland area has always been Rockside Road. Rockside has historically been the market that comes back slower than the eastern suburbs, but once it gets to single digits, it signals the swing back to an overall healthy suburban landscape and the impetus to new development. “Rockside tends to be the market that sales offices are located in and when the economy comes back, the regional sales office comes to Cleveland and turns the vacancy around,” Roe says.

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