By: Andrew Batson, Director of Research, JLL
Cleveland has earned national media attention for its continued revival—and it’s paying off. In just the last two years alone, office investment sales in Cleveland have totaled more than $550 million. In fact, sales volumes are approaching pre-recession levels with steady improvements since 2010. So, what’s catching the eye of these investors?
The city’s office market is tightening following a boom in demand for residential space from millennials, causing many former office buildings to be redeveloped into multifamily units. Because of the influx of young professionals downtown, businesses are also picking up on the perks of being in the urban core, which has heightened confidence from both in- and out-of-state investors.
Read on to learn more about why investment groups are opting for ‘The Land,’ in our newest report, the Cleveland Investor Perspective.
Despite the recent popularity, some skeptics may still be wondering, why Cleveland? In short, Cleveland is cool.
Nearly 50% of Cleveland’s downtown population is made up of millennials as the city boasts a live-work-play lifestyle in progress. And while companies are eager to follow in their tracks, downtown space remains tight.
“We’ve had three-and-a-half million square feet of office product in Cleveland’s downtown changed into multifamily,” Director of Research Andrew Batson says in a recent GlobeSt article. This number, however, could continue to grow to accommodate demand.
For instance, after receiving approval from the city, Cleveland firm Stark Enterprises, may soon begin construction on The Beacon, a prospective 29-story, 187-unit apartment tower at 515 Euclid Ave.
Unlike the typical premium markets like New York, Chicago or Los Angeles, downtown Cleveland brings more than enough to the table, including jobs in advancing fields like healthcare and manufacturing, a lively entertainment and restaurant scene, and competitive rental rates.
Investment Activity Coming from All Corners
What’s more is that this increased activity isn’t just coming from local buyers. Out-of-state investors are driving a large portion of recent investment activity. Among the biggest players include Shelbourne, Hertz Investment Group and Somera Road, all with expanding portfolios throughout Northeast Ohio. Together, the three groups have acquired more than 3 million square feet of office space totaling $301.8 million.
The low barriers to entry and higher yields than on the coasts have sparked the interest from out-of-state buyers, as well as the promising market outlook caused by the demand of both young professionals and companies.
Local buyers have maintained a strong presence in the market, too. K&D Group, responsible for many of downtown’s office-to-residential conversions, recently purchased Terminal Tower and Post Office Plaza among others. While these spaces are slated for more residential space, K&D also indicated some space will be allocated for offices.
The Investment Continues: What to Expect
As investors continue to set their sights on Cleveland, tenants can expect a wave of property improvements in some of the area’s most prominent spaces. Modern finishes, enhanced amenity offerings and improvements to the buildings’ operating systems are just a handful. But, with these improvements also comes a price tag. Landlords will gain negotiating leverage as the market tightens and upgrades to properties continue, causing an uptick in rental rates for tenants.
Continued investment activity is also anticipated through 2018 with a number of properties on the market, including AECOM Center, the Tower at Erieview and more.
“We could see another two million square feet trade next year,” says Batson. “[We anticipate] 2018 could be as busy as 2017.”
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.