Commercial Real Estate News Brief: July 2016

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In the latest edition of our monthly news brief, JLL’s regional team curates the top industry articles to keep you in-the-know. In this month’s edition, JLL spotlights investors making the move to secondary markets, Brexit’s impact on CRE and the RNC in Cleveland.

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Investors Move Toward Secondary Markets

JLL CRE News Brief

Newspaper image via NS Newsflash.

As rental rates continue to climb out of reach for tenants in the top markets, investors are shifting their interest to secondary markets. Secondary markets are not only gaining interest from large corporations, but also startups, which may seek Class B and C buildings to accommodate their budgets.

Markets like Cincinnati are seeing spikes of institutional investment in suburban areas with trades among Class B and C buildings, including the 253,000-square-foot Pictoria Tower I in Springdale. Detroit’s CBD is also on the upswing with vacancy rates hitting all time lows, while still gaining popularity among millennials and young professionals entering the workforce.

Meanwhile, Columbus continues to adjust its rental packages for the influx of startups entering the market in the hopes of continued growth to mid- or large-size businesses. Similarly, Pittsburgh’s mixed-use environments are also in high demand as the economy continues to grow.

How Brexit Affects the U.S. CRE Market

After the UK voted to leave the European Union (EU) last month, experts were uncertain about the toll it would take on U.S. commercial real estate and property demand. Although some details are still unknown about its effect, the impact is expected to be minimal.

While investors and landlords should anticipate a slowdown in leasing activity and overall decision-making for office spaces, there has been some speculation that a handful of markets may actually benefit as activity is restructured from the UK.

As for real estate investment, a temporary pause on transaction activity and evaluation of pricing can be expected; however, even in first few days of the Brexit vote, U.S. REITs declined just over 1%, making U.S. CRE a fairly safe investment for the time being.

RNC Puts the Spotlight on Cleveland

The city of Cleveland prepped for well over a year for the RNC, and had the opportunity to show off a handful of projects and renovations to nearly 50,000 visitors. The new developments and economic impact has positioned the city for long-term growth.

Among these developments is the 32-story Hilton Cleveland Downtown Hotel, which opened to the public earlier last month. The hotel not only lodged nearly 600 guests, but also served as a gateway to the Cleveland Convention Center where some RNC activities were hosted.

Another notable development includes the renovation of Public Square. Complete with ample green space, a new water fountain and Rebol, a newly opened restaurant in the center of it all, Public Square will continue to serve as a welcome mat for future Clevelanders.

With the renovated Cleveland Hopkins Airport and soon-to-be Health Education Campus, Cleveland may be positioning itself to be a continued contender as it enters the convention industry.

CRE News Wrap-Up in Our Region

Cincinnati

  • The redevelopment of the former NuTone estate in Madisonville is anticipating an increase reaching $200 million—a 60% upsurge from its original starting cost. The site will include apartments and a resort-style hotel.
  • Columbus-based architecture firm M+A Architects will expand its offices into Over-the-Rhine. The firm sought out a location that would allow them to incorporate their employees and services in a walkable, downtown location.

Columbus

  • Demand for Class A space in downtown Columbus continues to grow, and as a result, is sparking the need for more office development. As pipeline projects like Millennial Tower begin construction in the near future, vacancy rates are expected to continue to drop and rental prices are expected to increase.
  • The Downtown Commission is on track to review approval for Two25 Commons, a mixed-use building in Columbus Commons. Developers are proposing the build for the property to be 12 stories high, and would signal a milestone in the seven-year development plan of Columbus Commons.

Cleveland

  • Two of Cleveland’s skyscrapers—North Point and AECOM—recently began a pursuit to sell properties, while the Midwest market continues its successful streak. The RNC has given the city a boost in development and beautification, which has spurred downtown growth.
  • After a long-awaited championship and renovated Public Square, paired with numerous downtown developments, the city of Cleveland is ready to take center stage. A total of 29 projects between now and 2018 have given Clevelanders much to look forward to, especially with its impressive job outlook in health and medical industries.

Detroit

  • Detroit’s vacancy rates have dropped to single digits in 20 of the city’s downtown office buildings. Rates dropped from 26% in 2010 to 9.4% in Q1 of 2016, which have sparked talk of new downtown construction to meet the rising tenant demand.
  • Five teams of developers will invest nearly $52 million into Detroit’s Paradise Valley to help revitalize the district. Projects like a boutique hotel, residential, retail and office space are all in the development pipeline.

Pittsburgh

  • JLL recently debuted its regional headquarters—JLL Center—at Tower Two Sixty in the heart of downtown, complete with varied styles of common spaces and meeting rooms, adjustable desks and more. The new HQ focuses heavily on an open layout for a more efficient workplace strategy.
  • Chevron, a multinational energy company, placed its regional headquarters site in Moon Township up for sale. The property includes more than 60 acres, which was originally slated to include a large office campus.

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Newspaper image via NS Newsflash.

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