The current Cleveland office market is akin to your standard airline departure: A great deal of time spent biding one's time, waiting for something to take off.

"Generally, our (office) market mirrors what most of the country has seen, which is major corporations in a bit of a holding pattern," explains Robert Roe, SIOR, managing partner of The Staubach Company's Great Lakes office in Cleveland.

"Local businesses still have leases that are set to expire, which is beneficial," he says. "They can evaluate the situations and there really hasn't been much pent-up demand so landlords are becoming more aggressive."

Sometimes, another company's misfortune can be beneficial to the whole.

"LTV Steel went bankrupt and that put a lot of space back on the market," Roe says. "Downtown has about a 17 percent vacancy rate right now. Most of the Class C space in our market has been converted to retail, housing or telecom. Now some of the telecom space needs to be retooled. Cleveland tends to be a second or third tier market to most national companies and sales organizations which was fueling some of the lower vacancies in the past. With those companies holding back, it has tempered demand."

Downtown is still suffering a vacancy hangover from BP's merger with Amoco, which moved to Chicago. That added almost 300,000 square feet from the sublease market and approximately one-third of that space is still available today.

As a result, the financial successes of the past few years have dimmed a bit for area landlords.

"Really, the suburban landlords who had enjoyed such prosperity with single digit vacancies from 1998 to 2001 have truly seen the tables turn on them. Now those same areas are 17 to 22 percent vacant."

Eastern Progression

Cleveland recently received a much-needed boost, thanks in part to Progressive Insurance of Mayfield Village, Ohio.

In the Eastern suburbs, Progressive leased around 250,000 square feet from Duke Realty and Koll Bren. Both parties had two vacant buildings in the Eastern suburbs that were in leased by one user -- one of the buildings was vacant for over 18 months.

"It was a great shot in the arm to the market," says Roe.

Staubach recently completed a deal with Cisco Systems in a new 115,000 square foot office facility currently under construction in Richfield, Ohio, of which 90,000 square feet will be occupied by Cisco.

"It's huge because this, combined with Progressive's recent takedown, is the first sign of the market turning around," Roe says.

"Now however, with tenants in position to revisit leases, they're striking the best deals we've seen in about 10 years," Roe continues. "And landlords aren't fire selling like they did 10 years ago. We have a much more institutional, you might even say parochial, landlord in the market. Landlords are being aggressive, but they are smarter and thinking more institutionally. You're not seeing as many free rent offers and tenant improvement allowances."

"It's an advantage as that lends staying power," he adds. "What you'll begin to see is a quicker rebound in the market. That's mutually beneficial, because it doesn't help anyone for tenants to have ridiculously low rent."

Closer To Home

In 1998, Staubach opened in the Great Lakes region, which consists mainly of Cleveland, Columbus, Detroit and Pittsburgh and smaller markets such as Toledo, Akron, Canton and Erie, Pennsylvania. Since then, Staubach has enjoyed a 30 percent growth rate.

"We look at this as a great regional place to be. We've been well received and have a different view than most real estate companies -- one that the corporations have really embraced," says Roe. "A number of our clients in the area do regional business as well as national, which really helps us a national company to enhance their real estate needs both regionally and nationally."

"Of course, we're cautious about the downturn in the economy, but we're still looking to grow (beyond recent growth in Detroit and Columbus offices). Still, we do a lot of corporate service work for companies and are focusing on locally-owned businesses in Cleveland," he adds. "We're working with Cohen and Co., as well as the Convention and Visitors Bureau in Cleveland and also with a couple of law firms, including Brouse McDowell and Hermann, Cahn & Schneider. We have a focused law firm practice group that looks at the relationship of the firm and the overhead involved and as a result, we're able to bring in a lot of national benchmarks so that the local firms that are hungry for information and cost structure can benchmark themselves versus others across the country."

Robert Roe is managing partner of The Staubach Company.


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