By: Andrew Batson, Senior Research Analyst, Great Lakes Region, Jones Lang LaSalle
Despite various upturns and downturns during the second quarter of 2013, the U.S. economy continues its path to recovery. The office market continues to outperform previous quarters. In fact, both touring and leasing activity increased nationally during Q2. As a result, vacancy levels are at their lowest since 2008. JLL’s National Outlook found:
“The growing strength of the economic base helped position the domestic office market in its best light in more than two years.”
The Midwest also saw various wins and losses during Q2. Pittsburgh, in particular, made its way into national news with big leaps in investment activity.
Developer Anderson Birkla Investment Partners has announced a new mixed-use development plan for the 580 building downtown, estimated to cost $40 million. The building, now dubbed AT580, will be updated to significantly reduce current office space square footage. The converted space will include 179 residential units and 48,000 square feet of retail; 180,000 square feet of office space will remain. This is a welcomed change for an underserved residential market. Expect to see the updated building complete by 2014.
Q2 Market Activity
Leasing activity remained flat during the second quarter. The University of Cincinnati moved into newly leased space at the Loop Development. The University’s new area spans about 40,000 square feet. Kao USA Inc. also signed a lease for 55,000 square feet downtown at 312 Plum.
Several big names entered the Cincinnati market during Q2. Following state approval of a job creation tax credit, Apex Industrial Technologies is in the local market for new space. Also seeking space in the area is a Kroger Co. marketing representative, P.L. Marketing. The growing national grocery chain is pursuing 60,000 square feet in Newport and Avondale.
Sales volume, construction deliveries and construction starts all remained stable. However, several large deals transpired in Q2. The Florence Trading Center, located at 7200 Industrial Rd., sold to CyprusOne LLC for 10.5 million ($75 per square foot). In other news, construction at DunnhumbyUSA’s $100 million dollar mixed-use development project continued through Q2, and will continue into Q3. The asset is projected to be complete in 2014.
In big and tall Cleveland news, KeyCorp renewed its lease at Key Tower (the city’s tallest building). The new lease commits KeyCorp to 487,000 square feet of space for the next 15 years. KeyCorp originally leased about 700,000 square feet of space, hence a 213,000 square feet reduction from their previous lease. The significant reduction in space follows recent office space utilization trends; however, the bank attributes the space reduction to restructured office design and internal schedules.
Q2 Market Activity
Leasing activity improved during Q2. The Ernst & Young Tower (delivered in Q2) attracted several new tenants, among them Wells Fargo and Stern Advertising. The Cleveland Metropolitan School District also signed a lease downtown at the former Eaton Headquarters. The School will occupy 88,000 square feet, officially moving in the fall.
Expecting significant growth, Alexander Mann entered the market for downtown office space. The HR company is currently located at the Tower of Erieview, but expects to hire about 25 new employees in the near future (a number too large for their current 8,000-square-foot space).
Sales volume decreased in Q2; however, construction starts increased. The Westlake Five Seasons Family Sports Club sold to Hyland Software for $11.1 million during Q2. The club will be converted into a technology center. Downtown, construction continues at the corner of East 9th and Prospect Avenue on the new 8-story Cuyahoga County Headquarters, led by Geis Companies.
Verizon revealed plans to move about 1,500 employees from the Dublin office to a new headquarters in Hilliard. Thanks to the largest private employer in Central Ohio (JPMorgan Chase & Co.), the loss is padded by about 500 new jobs coming soon to Dublin. Chase has plans to lease about 165,000 square feet at 5900 Parkwood Pl., with a tentative move-in date in the fall.
Q2 Market Activity
Leasing activity went up. Cardinal Health increased their current office space in Dublin at Parkwood I by 61,000 square feet. The Safelite Group Inc. also expanded their current space at 2500 Farmers Dr. by 28,000 square feet.
The Columbus market saw several new entries during Q2. Expedient Communications, now located in Upper Arlington, is in the market for new space in the northern submarkets. In the Arena District, Dynamit—a digital design and marketing services company—is seeking 10,000 square feet of office space. The move will double current space usage, and will also create about 30 full-time positions.
Sales volume increased, while construction starts and delivered remained stable. Lifestyle Communities bought two downtown office buildings during Q2 with intentions to demolish both and build apartment units. The Trautman Building (42,000 square feet), as well as the building at 221 S. High St. (15,000 square feet) sold for $750,000. In the Arena District, Columbia Gas continues construction on their new $50 million dollar headquarters.
Time Equities Inc., a NYC-based real estate firm, purchased Travelers Towers I and II for an undisclosed price from Lehman Brothers Holdings Inc. The 790,000 square foot complex is located at 26555 and 26533 Evergreen Rd. The original owner poured millions into the asset during the last three years, but was unable to lower the vacancy below 40%. As new owner, Time Equities plans to reposition the complex for increased occupancy, starting with a $10 million investment.
Q2 Market Activity
Local leasing activity increased during Q2. Magna International, an automotive supplier, signed a lease at 750 Tower Dr. for 117,000 square feet. Approximately 300 employees will be relocated to the new space in the North Troy Corporate Park. Miller Canfield, Aastrom Biosciences and Heritage Newspapers also signed Detroit lease renewals.
Two businesses are now in-the-market for Detroit office space. Brooks Kushman, a law firm, is seeking 64,000 square feet, and Morgan Stanley Smith Barney is in the market to double its current space to 30,000 square feet. Morgan Stanley hopes to relocate by the end of the year.
Sales volume and construction starts remained flat, but construction starts did increase in Q2. In a hefty $10.6 million deal, Dahlmann Properties bought space in Washtenaw at 301 East Liberty. Dahlmann’s new space spans 86,000 square feet. In construction news, the $82.5 million mixed-use development project at the David Whitney Building will continues into Q3. When complete, the 250,000 square foot space will include an Aloft hotel, retail space and apartments.
Pittsburgh’s market activity is heating up; it’s an exciting time for owners, investors and landlords alike. Occupancy levels remained high in Q2. A recent study discovered that outside investors generated 10 out of 13 key investment sales during the quarter. Additionally, 3,200 news jobs came to Pittsburgh during April, reflecting a slight drop in the unemployment rate, according to the Pennsylvania Department of Labor and Industry.
Q2 Market Activity
Leasing activity went up in Q2. KPMG resigned their 22,000 square foot lease at BNY Mellon Center, but will relocate to the 34th floor. Another significant deal, Netronome increased their occupancy at Cranberry Business Park, expanding from 19,000 square feet to 35,000 square feet. Rex Energy and NSABP Foundation also signed sizable leases.
Sales volume, construction deliveries and construction starts all stayed stable in Q2. With a positive outlook, a great deal of activity remains. The Gardens mixed-use development project was officially approved by the city of Pittsburgh during Q2. Millcraft Investments will lead all development at the downtown Market Square site. The new space will include a Hilton Garden Hotel, 13,692 square feet of retail, 125,282 square feet of office space and a 330 spot parking garage. Construction continues on PNC Plaza’s 800,000 square foot office building, located at the intersection of Fifth and Wood Streets.
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About the Author
Andrew Batson is Senior 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.