By: Andrew Batson, research analyst, Great Lakes Region, Jones Lang LaSalle
Jones Lang LaSalle recently wrapped up production of its annual Skyline Review, which included focused research on high-profile commercial buildings in Cincinnati, Cleveland, Columbus, Detroit and Pittsburgh.
To meet JLL skyline qualifications, each included building exceeds 175,000 square feet, houses a recognized tenant, maintains a desired location, and has been newly built or renovated since 1985. While conducting the review, we examined occupancy, leasing, investment and rent rates within prime skyline real estate.
All local market Skylines were developed in conjunction with the United States Skyline Review, so that CRE professionals can easily compare their cities to national trends, and draw conclusions about 2012 as well as the year to come. Following are highlights from each of our region’s Skyline Reviews, with information to download all complete reports if you’re interested.
The Cincinnati Skyline
The Cincinnati skyline spans 18 office buildings. Across this set, direct vacancy has heightened in the past year, reaching 23.3% at the close of 2012. Many tenants left Kentucky properties upon realizing additional benefits within the state of Ohio, including a tax environment tailored to enhance business success. Vacancy increased as an abundance of tenants left properties at Madison Place, Rivercenter I and Rivercenter II, in particular.
Despite elevated vacancy, the Cincinnati Skyline saw increased leasing activity over the course of the past year. Several sizeable businesses officially relocated within the city’s Skyline, including Omnicare, Vorys, First Financial and Neilsen. But, the CRE landscape altered dramatically when Chiquita Banana left its 113,000 square foot Cincinnati headquarters. The additional space will likely affect landlord behavior and flexibility in 2013.
Cincinnati Skyline Statistics (as of year-end 2012):
- Inventory: 8,209,912 square feet
- Direct vacancy: 1,707,812 square feet (+ 92,149 square feet since last year)
- Direct vacancy rate: 20.8% (+ 1.1% since last year)
- 2012 net absorption: – 204,521 square feet (compared to + 405,008 square feet last year)
- Gross asking rents: $24.10 (+ $0.15 since last year)
The Cleveland Skyline
The Cleveland office market holds more existing inventory (9,114,810 square feet) than many cities within the US secondary markets including Cincinnati, Baltimore, Columbus, Detroit, Portland, Tampa and more. Cleveland businesses increased overall occupancy, pushing direct vacancy levels down to 19.3%, 0.3% less than last year. Atypically, average asking rent along the skyline also dipped, to $20.13 per square foot.
Despite positive absorption gains in 2012, we expect vacancy levels to rise above 24% this year, due to the addition of the Ernst & Young tower, as well as the relocation of Eaton Corporation.
Cleveland Skyline Statistics (as of year-end 2012):
- Inventory: 9,114,810 square feet (+ 544,000 since last year)
- 45 Erieview Plaza added to this year’s assessment
- Direct vacancy: 1,760,395 square feet (- 28,284 since last year)
- Direct vacancy rate: 19.3% (- 0.3% since last year)
- 2012 absorption: 69,823 square feet (+ 74,627 since last year)
- Gross asking rents: $20.13 (- $0.13 since last year)
The Columbus Skyline
The signature series of Columbus office buildings charmed new tenants into the skyline during 2012. Asking rents began to climb as vacancy dwindled to 14.3% across the 20 properties. Gross asking rents heightened to $19.90, providing additional income for landlords and trending space for tenants.
The ongoing growth along Columbus’ skyline correlates with the recovering economy. In 2012, Columbus and its surrounding suburbs generated more than 17,300 jobs, and the city is expected to continue growing throughout 2013.
Columbus Skyline Statistics (as of year-end 2012):
- Inventory: 5,366,034 square feet
- Direct vacancy: 768,745 square feet (- 77,456 square feet since last year)
- Direct vacancy rate: 14.3% (- 1.4% since last year)
- 2012 net absorption: 52,221 square feet (- 26,343 square feet since last year)
- Gross asking rents: $19.90 (+ $0.06 since last year)
The Detroit Skyline
Law firms, financial services, technology companies and automotive manufacturers, among other businesses, inhabit the space along Detroit’s skyline. Detroit’s local economy saw improvements with the creation of 8,100 jobs; however, vacancy heightened to 19.2% and asking rents dipped below 2011 levels to $20.80 per square foot.
Despite increased vacancy among the Skyline, several key transactions enhanced the skyline tenant base in 2012. Detroit’s Renaissance Center Towers 500 & 600 made the 2012 national top 20 Skyline Leasing Transactions with Blue Cross Blue Sheilds’ (BCBS) 470,000 square foot lease. The transaction, which was completed by BCBS in the second quarter, ranked third. Additionally, Quicken Loans and Chrysler completed hefty transactions to expand their current real estate footprints.
Detroit Skyline Statistics (as of year-end 2012):
- Inventory: 7,563,699 square feet no change
- Direct vacancy: 1,454,170 square feet (+ 70,406 square feet since last year)
- Direct vacancy rate: 19.2% (+0.9% since last year)
- 2012 absorption: -40,406 square feet (compared to 223,090 square feet in 2011)
- Gross asking rents: $20.80 (- $0.75 since last year)
The Pittsburgh Skyline
The Pittsburgh Skyline currently has the least vacant space in the country, dwindling below 5% in 2012.
As a result, gross asking rents rose to approximately $27.00 per square foot. Asking rents have continued to climb for three consecutive years in Pittsburgh, and are expected to continually heighten in 2013 due to minimal available space. However, this trend may change in 2015 with the projected completion of the 32-story PNC Bank Tower.
Upon completion of the new tower, PNC Bank plans to move out of 145,000 square feet on four floors of the U.S. Steel Tower. When this large block of prime space becomes available, we expect physical vacancy to rise to as much as 6.4 percent throughout the Class A CBD market.
Still, with area employment making large strides in 2012 (sustained into 2013) coupled with the robust local economy, we foresee pent-up demand to fill the large blocks with relative alacrity, keeping Pittsburgh one of the tightest office markets in the U.S.
To access the full 2013 Skyline Report for your city of interest, follow the associated link below.
About the Author
Andrew Batson is Research Analyst for the Michigan and Ohio region of Jones Lang LaSalle and is responsible for the publication of quarterly and annual research. Mr. Batson ensures that our clients receive the most thorough, timely, and strategic market information in a way that guides decision making and identifies risks and opportunities. View Andrew Batson’s bio or connect with Andrew on LinkedIn.