By: Andrew Batson, Director of Research, JLL
Increasing leasing activity, speculative development and shifting market leverage in commercial real estate are constantly reshaping city Skylines across the U.S.
JLL’s Skyline Review registrants can take a deep dive into the trends impacting 57 major skylines across the United States and Canada, and learn about which national trends are transforming markets close to home.
Read on for a closer look at how the Skylines in the Midwest are performing and what to expect in the coming months.
Mixed-Use Development is on the Rise in Cincinnati
Cincinnati’s Skyline is comprised of large office buildings that are occupied by large tenants, many of them recognized as Fortune 500 companies. Rental rates have dropped 0.7% from 2016 to Q1 of 2017. At the same time, vacancy rates remain well above the national average at 20.9%, which has boosted demand for affordable Class A space within the Skyline.
With $2.3 billion worth of development and redevelopment projects planned or underway within the city’s core, Cincinnati should expect to see an increase in Class A space in the coming months. Amid the development boom, the Cincinnati core has experienced a spike in construction and renovations within the Skyline. With 17 mixed-use projects proposed or in the pipeline as of March 2017, the Skyline may look a lot different inside and out by this time next year.
Cleveland’s Renaissance Leads to a Surge in Tenant and Investor Demand
Nationally recognized as a city on the rise, Cleveland continues to reinvent itself. With many development projects underway and increasing media attention, Cleveland’s renaissance is boosting investor confidence and driving residents and businesses to the urban core.
As part of the city’s resurgence, developers have proposed nuCLEus, a $540 million project. The development would bring a hotel, retail and restaurant space, residential units, office space and a parking garage to the city’s CBD. Other examples include partial conversions of the Tower at Erieview and Terminal Tower to mixed-use spaces in the CBD. These projects will help transform the city into a vibrant urban environment.
The city’s 17.7% total vacancy rate is expected to drop as more tenants gravitate toward the core. New developments and redevelopment projects will likely reshape the city’s Skyline, continuing to attract new business and young professionals to the city.
New Construction in Columbus Demonstrates a New Focus on Quality
A slew of new construction projects are breaking ground in Columbus as tech and logistics companies continue to flock to the urban core. As demand for premium space continues to increase, limited Class A space throughout the Skyline has created an opportunity for developers to introduce new space to the region.
Landlords have taken note of the demand for open and more efficient floor plans, and have invested in capital improvements to existing buildings, such as the Huntington Center and 10 West Broad.
The addition of two new high-rise buildings at LC RiverSouth and a proposed 24-story mixed-use Millennial Tower would reinforce the attractiveness of the market as the city would experience an increase in office, retail and residential space. Paired with the fact that Columbus is ranked the number one city in Ohio to start a business and one of the best cities for millennials, the city will likely continue to draw new investment and construction moving forward.
Detroit Skyline Awaits Construction That Will Bring Jobs to the CBD
The future looks promising in the landlord-friendly Detroit Skyline. As an increasing number of high-profile businesses choose to locate in the downtown area, overall vacancy remains low at 7.5%. Detroit is experiencing an onslaught of development and redevelopment projects that will bring new jobs and businesses to the CBD.
As high profile tenants, such as Microsoft, move into office space in the urban core, developers will shift focus on building new spaces that will transform the Skyline. Speculative projects have been proposed for hotspots, such as Monroe Block, Hudson’s site and the Riverfront.
Developments like these leave many citygoers wondering, what will Detroit’s Skyline look like in the next five to 10 years?
Grand Rapids Is Experiencing a Spike in Speculative Development
As one of the fastest growing metropolitan areas in the state, Grand Rapids remains a hotbed for high-profile tenants. Firms, such as Bank of America, are investing in sizable Class A office space along the Skyline.
Renovations to Bridgewater Place, 50 and 250 Monroe, as well as the addition of the Arena Place office building has pushed rental rates up to a $22.28 direct average asking rate while increasing rentable space to the city’s Skyline.
Although the city is experiencing an increase in speculative development, vacancy rates remain above the national average at 18% due to Fifth Third Bank’s consolidation and high vacancy in buildings, such as 200 Monroe and 300 Ottawa.
Stable Market Conditions Drive Investment in Louisville’s CBD
Although PNC Plaza is facing high vacancy rates following PNC Bank’s consolidation into PNC Tower, the consolidation has presented new opportunities for firms to claim a stake in downtown Louisville. Since 2014, more than $11 billion has been invested in infrastructure and project development in the CBD.
Though Louisville’s CBD boasts a 16% vacancy rate, an increasing number of non-traditional firms have selected the city’s Skyline to expand operations. The region attracts investors as a result of its stable market conditions, rich historic architecture and Class B office spaces, which can be converted into other uses.
Additionally, the failed merger between Aetna and Humana has positively impacted the Skyline, keeping the largest user in the CBD and barring vacancy rates from climbing higher than 16%. This could also open new opportunities for future expansion within the Skyline.
Out-of-Town Investment in Pittsburgh’s Skyline Boosts Rental Rates
Out-of-town investors accounted for 18 of 20 office-building sales in Pittsburgh. Because the market has strong fundamentals, non-Pittsburgh companies have spilled more than $1 billion into properties and renovations in or surrounding the city’s urban core.
The city is more affordable than common primary markets, such as Boston or New York, which has recently been attracting the likings of millennials, businesses and investors. Often characterized by low vacancies and high rental rates, building owners are now looking to take advantage of the landlord-friendly market.
As investors become even more confident in the Pittsburgh region, demand for Class A space will continue to increase steadily. However, with a low 11.7% vacancy rate, space will become scarce and landlords will have the ultimate leverage and likely increase asking rents in the coming years.
To explore more of the latest trends impacting city skylines across the U.S., be sure to visit Skyline Review or read through the SlideShare above for more on the Top four premium office market trends in 2017 from JLL.
About the Author
Andrew Batson is a Director of Research in the Great Lakes region of JLL. Andrew is responsible for building and continuing to elevate a best-in-class research program that differentiates JLL and drives a competitive advantage in the marketplace through market expertise, analysis and insight. Connect with Andrew on LinkedIn.