Post on 11-Apr-2017
JLL Research
Cleveland | Q1 2017
Office Outlook
An in-depth look at the Cleveland office market. Analysis includes leasing, sales, construction and employment.
© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Q1 2017
Insight
Key Tower, Ohio’s tallest building and the centerpiece of the Cleveland Skyline, traded hands in the first quarter. Millennia Companies purchased the 1.3-million-square-foot office building along with a 400-room Marriott hotel and a 1,000-space parking garage for $267.5 million. Millennia will move its offices to Key Tower later this year followed by the headquarters of Forest City in the spring of 2018. The two companies will lease a combined 196,000 square feet, increasing occupancy in the tower to about 95.0 percent. Downtown Cleveland’s office market has improved significantly in recent years, thanks to the urban migration of office tenants and office-to-residential conversions. As it stands now, the three trophy office buildings in downtown Cleveland (Key Tower, 200 Public Square, and the Ernst & Young Tower) are more than 90.0 percent leased, a positive indicator on the market’s health.
Office demand is also strong in the suburbs, prompting the first speculative office developments in years. Developers are particularly bullish on the East submarket where three projects are under construction: Pinecrest (150,000 square feet) in Orange, Van Aken (66,000 square feet) in Shaker Heights, and Highlands Center (47,000 square feet) in Beachwood. All three of these properties have secured preleasing commitments, signaling a willingness by companies to pay a rent premium for well-located, modern office space.
OutlookCleveland’s strengthening economy will translate into increased office demand in 2017. Downtown Cleveland will remain a key beneficiary of this growth, with declining office vacancy and increased investor interest. The pace of preleasing will pick up at the speculative office developments in the East submarket. And finally, we will be watching the burgeoning Midtown submarket closely this year. This neighborhood is seeing increased interest from tenants and developers, and we think 2017 will be a breakout year.
Fundamentals Forecast
YTD net absorption 3,570 s.f. ▲Under construction 263,000 s.f. ▶Total vacancy 19.0% ▶Average asking rent (gross) $18.79 p.s.f. ▲Concessions Falling ▼
-250,000
250,000
750,000
2013 2014 2015 2016 YTD
2017
Supply and demand (s.f.) Net absorptionDeliveries
Increased demand from the business community prompts speculative office developments
20.6%
19.9% 20.0%
19.0% 19.0%
2013 2014 2015 2016 2017
Total vacancy
$10.00
$15.00
$20.00
$25.00
2013 2014 2015 2016 2017
Average asking rents ($/s.f.) Class AClass B
• Key Center sold for a blockbuster $267.5 million. Millennia and Forest City will move into the office tower, increasing occupancy to 95.0 percent.
• Three speculative office developments are under construction in the East submarket. Look for preleasing at these projects to accelerate in 2017.
• Tenant interest in the Midtown submarket is growing, prompting Hemingway to move forward with its Link 59 office development.
Cleveland Office Outlook
© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Q1 2017
Statistics
Cleveland Office Outlook
ClassInventory
(s.f.)
Total net
absorption
(s.f.)
YTD total net
absorption
(s.f.)
YTD total net
absorption
(% of stock)
Direct
vacancy (%)
Total
vacancy (%)
Average
direct asking
rent ($ p.s.f.)
YTD
completions
(s.f.)
Under
construction
(s.f.)CBD Totals 15,345,311 66,095 66,095 0.4% 20.0% 20.5% $19.56 0 0Northeast Totals 557,695 -35,005 -35,005 -6.3% 29.4% 30.1% $15.61 0 0East Totals 3,779,116 7,806 7,806 0.2% 12.9% 14.1% $20.28 0 263,000Southeast Totals 992,906 -23,661 -23,661 -2.4% 11.1% 12.8% $17.31 0 0South Totals 4,788,748 -35,021 -35,021 -0.7% 18.0% 18.2% $17.94 0 0Southwest Totals 1,096,322 -8,525 -8,525 -0.8% 30.0% 30.0% $16.88 0 0West Totals 1,939,302 31,881 31,881 1.6% 12.3% 12.3% $16.14 0 0Suburbs Totals 13,154,089 -62,525 -62,525 -0.5% 16.7% 17.2% $17.92 0 263,000Cleveland Totals 28,499,400 3,570 3,570 0.0% 18.5% 19.0% $18.79 0 263,000
CBD A 5,854,816 11,146 11,146 0.2% 13.4% 14.1% $24.15 0 0East A 1,787,285 5,434 5,434 0.3% 10.0% 11.2% $23.14 0 263,000Southeast A 241,105 0 0 0.0% 0.1% 7.2% $23.00 0 0South A 1,839,945 -22,459 -22,459 -1.2% 14.5% 15.0% $21.12 0 0Southwest A 88,000 0 0 0.0% 6.4% 6.4% $0.00 0 0West A 539,951 8,940 8,940 1.7% 4.5% 4.5% $19.99 0 0Suburbs A 4,496,286 -8,085 -8,085 -0.2% 10.6% 11.6% $21.81 0 263,000Cleveland A 10,351,102 3,061 3,061 0.0% 12.2% 13.0% $23.17 0 263,000
CBD B 9,490,495 54,949 54,949 0.6% 24.0% 24.4% $18.17 0 0Northeast B 557,695 -35,005 -35,005 -6.3% 29.4% 30.1% $15.61 0 0East B 1,991,831 2,372 2,372 0.1% 15.6% 16.7% $18.75 0 0Southeast B 751,801 -23,661 -23,661 -3.1% 14.6% 14.6% $17.29 0 0South B 2,948,803 -12,562 -12,562 -0.4% 20.2% 20.2% $17.09 0 0Southwest B 1,008,322 -8,525 -8,525 -0.8% 32.1% 32.1% $16.74 0 0West B 1,399,351 22,941 22,941 1.6% 15.4% 15.4% $15.70 0 0Suburbs B 8,657,803 -54,440 -54,440 -0.6% 19.9% 20.2% $17.05 0 0Cleveland B 18,148,298 509 509 0.0% 22.0% 22.4% $17.63 0 0
© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Q1 2017
Construction
Cleveland Office Outlook
Address: 5900 E. 59 Street Square feet: 62,000Tenant: TBDOwner: Hemingway Development
Estimated completion: Q3 2017
Address: 3910 Orange PlaceSquare feet: 150,000Tenant: Alliance PrimeOwner: Fairmount Properties
Estimated completion: Q3 2018
Estimated completion: Q1 2018
Estimated completion: Q3 2017
Address: 20159 Van AkenSquare feet: 66,000Tenants: ABA, RMS, and othersOwner: RMS Investment
Address: 3900 Park East Square feet: 47,000Tenant: GlenmedeOwner: Palmieri Enterprises
© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Q1 2017
Leasing
Cleveland Office Outlook
This report analyzes leasing activity ≥ 5,000 square feet over a 12 month period, ending March 31, 2017.
Leasing activity by size
2,005,227
109
1,178,325
706,358
120,544
1,084,093
921,134
Growing Shrinking Stable
1,059,226
859,976
86,025
Notable leasing transactions
Submarket Size Footprint
CBD 148,000 Direct Stable
East 115,000 Direct Stable
CBD 107,000 Direct Growing
CBD 88,000 Direct Growing
CBD 79,000 Direct Stable
CBD 52,000 Direct Stable
CBD 48,000 Direct Growing
Southwest 46,000 Direct Stable
CBD 45,000 Direct Stable
Midtown 43,000 Direct Growing
CEOGC 1801 Superior Avenue
IBM 9500 Euclid Avenue
Hyatt Legal Plans 1111 Superior Avenue
Victory Capital 4900 Tiedeman Road
McDonald Hopkins 600 Superior Avenue
Taft 200 Public Square
New York Life Insurance 200 Public Square
PriceWaterhouseCoopers 200 Public Square
Forest City Enterprises 127 Public Square
Progressive Insurance 5920 Landerbrook Drive
Tenant Address Type
Leasing activity by transaction type
New Lease
Renewal
Expansion in building
Tenant footprint Leasing activity by industry Leasing activity by submarket
21 6 82
12 months at a glance
Class B leasing (s.f.)
Class C leasing (s.f.)
Leasing activity (s.f.)
Number of transactions
Class A leasing (s.f.)
Suburban leasing (s.f.)
CBD leasing (s.f.)
4
1
5
18
81
-
200,000
400,000
600,000
800,000
80,000+ 60,000-79,999 40,000-59,999 20,000-39,999 5,000-19,999
Total leased Number of leases
-
200,000
400,000
600,000
800,000
Q2 2016 Q3 2016 Q4 2016 Q1 2017
Historical leasing activity
#
Leasing activity by industry (s.f.) Leasing activity by submarket (s.f.)
54%
18%
13%
8%CBD
South
East
West
Midtown
Other
37%
34%
12%
8%7% Professional and business services
Finance
Public and private institutions
Construction and development
Commercial
Other
© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
20%
18%
14%13%
12%
9%
6%
Educational & Health Services
Trade, Transportation & Utilities
Professional & Business Services
Government
Manufacturing
Leisure & Hospitality
Financial Activities
Other Services
Mining, Logging & Construction
Information
Q1 2017
Employment
Cleveland Office Outlook
4.7%U.S. unemployment
1.7%U.S. 12-month job growth
6.6%Cleveland unemployment
.4%Cleveland 12-month job growth
5.0%Ohio unemployment
0.6%Ohio 12-month job growth
0.0%
0.7%
1.4%
2.1%
2.8%
2013 2014 2015 2016 2017
Cleveland U.S.
-4,900
-600
-300
200
700
700
800
2,200
3,700
8,400
-10,000-8,000-6,000-4,000-2,000 0 2,000 4,000 6,000 8,000 10,000
Manufacturing
Professional & Business Services
Information
Mining, Logging & Construction
Trade, Transportation & Utilities
Other Services
Financial Activities
Government
Leisure & Hospitality
Educational & Health Services
-5.0
0.0
5.0
10.0
2013 2014 2015 2016 2017
Professional & Business Services Information
Government Financial Activities
0%
4%
8%
12%
900,000
1,000,000
1,100,000
2013 2014 2015 2016 2017
Employment Unemployment
Employment vs. unemployment rate
Employment by industry Office employment trends (12-month change, 000s)
Job growth by sector (12-month change)
Job growth (12-month change)
Job growth by sector (12-month change)
© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Andrew BatsonVice President, Director of Research+1 216 937 4374andrew.batson@am.jll.com
Noah BillResearch Analyst+1 216 937 4381noah.bill@am.jll.com
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