HEARTLAND SNAPSHOT, OCTOBER 2006

Cleveland Office Market

The Cleveland office market has experienced a recent increase in mixed-use developments. Activity is stagnant for construction of specifically designed multi-tenant office use developments, while lifestyle centers that blend retail, residential and office space are on the rise.

There are major residential developments with supporting retail and residential components on the horizon. Other significant developments include the re-development of the Flats, which will create a self-supporting center with retail, services, green space and numerous amenities. A total of approximately $250 million is being invested in downtown transportation; an effort that will connect downtown to university and healthcare centers throughout the city. In the long term, these downtown developments will attract young professionals and individuals interested in diversity and excitement. As more people live in the city, the downtown employers will benefit by having a larger, better educated employment pool.  As people continue to move downtown, businesses will follow.

Much of the major development is occurring in the suburbs, with newly developed lifestyle centers and multi-use facilities attracting numerous types of developments to the area.

Many developers that have a long history in northeast Ohio are engaging in redevelopment activities in Cleveland. A trend is emerging between developers that offer unique expertise, as companies come together to form joint ventures to create larger mixed-use facilities.  The companies are combining their distinctive talents to develop creative multi-function sites. Developers are also displaying creative uses of existing space; this contributes to the rebirth of outdated facilities. Existing warehouses are being retrofitted to residential, office and retail space.

With healthcare and educational institutions backfilling vacant multi-tenant facilities, it comes as no surprise that municipal and healthcare companies are scheduled to absorb a large portion of the available product. Cuyahoga County Administration is slated to absorb 750,000 square feet of downtown office space. The Ohio College of Podiatric Medicine recently purchased a 126,000-square-foot facility, the former headquarters of Realty One Real Living, that will be used for training, practice and education.

According to the second-quarter 2006 market statistics, Class A office rental rates in Cleveland range from $15.50 to $29.40 per square foot in the central business district (CBD) and $12.50 to $25.00 per square foot in northeast Ohio, excluding the CBD.

Recent leases in the area include two leases for 27,677 square feet and 25,601 square feet at 1100 Superior, an office property located at 1100 Superior Ave. Also, a 17,702-square-foot lease was completed in the Penton Media Building located at 1300 East 9th St. in Cleveland.

Vacancy rates vary according to the submarket region within the greater Cleveland area. Rates in the northeast quadrant are at 20.3 percent; the CBD is at 20.1 percent; the southern submarket is at 19.8 percent; the southwest quadrant vacancy measures 16.1 percent; the western submarket totals 15.6 percent, and the east/southeast area vacancy rate is at 13 percent. The entire northeast Ohio investor-owned office market had a second-quarter vacancy rate of 16.6 percent.

The Chagrin Corridor has seen significant absorption of office space. At the same time, developments in hotel, restaurant and retail have increased, resulting in a continued positive outlook for the office market on the east side of Cleveland. 

— Farley Helms is senior vice president and Rocco DiPuccio is vice president of office services group at Colliers Ostendorf Morris in Cleveland.



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