Commercial Real Estate Trends in the Midwest: Q3

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By: Andrew Batson, Senior Research Analyst, Great Lakes Region, JLL

The third quarter of 2014 wrapped up on a positive note.

According to JLL, “Broad-based domestic economic expansion has fueled the tightest office market fundamentals in eight years across the United States.” And, thanks to strong economic forecasts nationwide, JLL expects 2014 absorption rates to exceed that of the last three years.

What does it mean for the U.S.? More confidant developers likely means more development for 2015.

Looking to the local cities across the Midwest, we also saw dynamic, lively activity in our local CRE markets. Below is a quick recap of Q3 highlights in Cincinnati, Cleveland, Columbus, Detroit and Pittsburgh. Download the full reports for details.

Market Activity in the Midwest

JLL-Research

Cincinnati

During Q3, there was an evident shift in demand for downtown space. We also observed an upturn in capital market activity during the third quarter. Increasing rental rates and declining vacancies have made Cincinnati an attractive investment spot. In fact, investors have spent more than $1 billion on Cincinnati CRE since the start of 2014.

In other news, construction teams stayed busy in Cincinnati. The majority of new projects are located in urban submarkets, with most interest in the CBD and Midtown. JLL predicts that this trend will continue, “…as development figures through the third quarter now equal that of pre-recession levels.”

By the numbers: 

  • Total vacancy: 20.3%
  • Total under construction: 1,389,000 square feet
  • YTD net absorption: 214,538 square feet

View the full Cincinnati Q3 analysis. (Office Insight Office Statistics)

Cleveland

Leasing activity remained steady during Q3. Law firms and healthcare companies have been the dominant leasing parties from January – September of 2014, with roughly 55% of total square feet leased.

In investment sales activity, downtown areas proved most popular in the third quarter. Several transactions involved out-of-town investors. One of the most notable transactions during Q3 was the 615,000-square-foot building located at 1111 Superior Avenue.

Another emerging trend: A growing number of office buildings are being converted for residential space as the demand for urban living continues to climb. During the third quarter, 450,000 square feet of office space was identified for conversion to residential space.

By the numbers: 

  • Total vacancy: 16.8%
  • Total under construction: 57,000 square feet
  • YTD net absorption: 9,729 square feet 

View the full Cleveland Q3 analysis. (Office Insight Office Statistics)

Columbus

Since the beginning of 2014, demand for space has been relatively split between the CBD and suburban areas. However, net absorption in the CBD is currently in the lead with 142,189 square feet YTD, as compared to 138,300 square feet of absorption in suburban markets.

Relatedly, vacancy in the CBD continued its gradual decline during Q3, leading to a number of new construction projects downtown. In fact, more than 500,000 square feet is currently under construction in the CBD.

Overall, things are looking up in Columbus. In the words of JLL research, the Columbus economy is “firing on all cylinders.”

By the numbers:

  • Total vacancy: 14.6%
  • Total under construction: 929,000 square feet
  • YTD net absorption: 280,489 square feet

View the full Columbus Q3 analysis. (Office Insight Office Statistics) 

Detroit

Leasing activity remained lively during Q3, with most interest centralized in downtown areas. With little to no new developments, the increase in demand is compressing vacancy rates in the city.

Another major trend we’re seeing: capital markets activity is hot in Detroit. There were a number of high-profile sales in Q3, including the $13.4 million dollar sale of the Old Wayne County Building.

By the numbers:

  • Total vacancy: 25.1%
  • Total under construction: 251,000 square feet
  • YTD net absorption: 860,639 square feet

View the full Detroit Q3 analysis. (Office Insight Office Statistics) 

Pittsburgh 

Class A vacancy rates remained in the single digits during Q3, in both the CBD (7.1 percent) and Southpointe submarkets (9 percent). In top leasing activity, BNY Mellon Center gained Michael Baker International as a new, seven-year tenant.

A typical trend for the summer months, activity in capital markets slowed down. On the flip side, construction teams have been busy trying to keep up with the growing demand for office space. Since January 2014, there has been 726,000 square feet of office space delivered, with 1,344,000 under construction, and 877,000 square feet in the development pipeline.

By the numbers: 

  • Total vacancy: 15.3%
  • Total under construction: 1,344,000 square feet
  • YTD net absorption: 71,571 square feet

View the full Pittsburgh Q3 analysis. (Office Insight Office Statistics)

If you don’t find what you’re looking for in one of these downloadable reports, feel to post a question or comment here and I will promptly respond. 

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About the Author

Andrew BatsonAndrew 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’s bio or connect with Andrew on LinkedIn.