By: Andrew Batson, research analyst, Ohio and Michigan, Jones Lang LaSalle
Optimism is the name of the game in the Midwest, evident by exceptional signs of growth and progress in otherwise muted economic conditions.
This summer, the State of Michigan and Canada announced plans for a $2.1 billion bridge, designed to ease traffic for the busiest border crossing in America. It’s expected to create a windfall for Detroit, forecasted to create more than 22,000 jobs and contribute $1.5 billion to the state’s gross product.
As of July, total employment was up 27,900 jobs year-over-year in Cincinnati, while unemployment decreased for the 13th straight month.
Cleveland continues to see job growth in the education and health services sector, including 16.5 percent increase in bioscience-related employment and 31 percent increase in payroll since 2000.
The Columbus economy continues its recovery, posting a 5.9 percent unemployment rate, which is well below the national average. Total nonfarm employment has increased by 22,200 jobs year-over-year, for a 2.4 percent improvement, and the education and health services sector has added approximately 10,400 jobs for an 8.1 percent increase.
In addition, manufacturing employment is on the rise in Detroit, along with gains in the professional and business services sector.
Capital markets activity accelerated for Cincinnati with a number of properties changing hands, in an even mix of distressed and investment-grade transactions. Neyer Properties acquired three assets totaling 237,000 square feet. Construction also remained heightened, with 120,000-square-feet of new headquarters delivered. More construction is expected to start this fall.
Leasing velocity did slow slightly in Cincinnati, with signed deals split between CBD and suburban markets. There was a high volume of relocations, which also involved expansion, and should keep absorption positive through year’s end.
The largest tenant to enter the market was P.L. Marketing with a requirement of up to 60,000 square feet and a target occupancy of 2015.
Downtown continues to see the most action in Cleveland, highlighted by news that Grant Thorton LLP will be relocating to 20,000 square feet on the 15th floor of One Cleveland Center in the CBD.
In Cleveland capital markets, a number of properties changed hands, and construction activity remained heightened, with more than 1.8 million square feet of office space in the development pipeline.
This includes Eaton’s new headquarters, the Ernst and Young Tower, and American Greetings’ new headquarters groundbreaking set for early 2013.
In Columbus, leasing activity accelerated in the third quarter with several larger tenants completing transactions. Quantum Health signed a renewal and expanded into 98,000 square feet at 7450 Huntington Park and Time Warner signed a renewal and expanded into 75,000 square feet at 1600 Dublin.
In addition, Chase Bank, which has recently expanded its footprint through the signing of a number of leases, is also in the market for an additional 100,000 square feet.
Leasing activity slowed through the third quarter in Detroit, with the majority of leases signed in the suburbs. However, there were a few major moves, including Title Source’s move of 1,500 employees to space in the First National Building, and other commitments to downtown by PwC US, Chrysler Group LLC and Twitter.
Detroit capital markets activity slowed in the third quarter, with the largest transaction involving One Kennedy Square, which was refinanced for $27.3 million ($112 per square foot) by J. P. Morgan Chase.
Construction activity has remained limited, with no speculation for increases due to historically high vacancy rates and depressed rental rates.
Continued activity is forecasted throughout the Midwest region to wrap up 2012, tethered to the ability to finance projects, and the continued good health of businesses on the whole.
Factors like political uncertainties and the ongoing recession in Europe may affect or delay major real estate decisions across the region, with the hope that more confidence will be restored in the market in early 2013.
In Ohio’s latest report, the leading indicator index for the Cincinnati metropolitan area rose 10 basis points to 99.6, suggesting modest employment growth through the fall, with touring activity and leasing velocity expected to remain stable for positive absorption numbers.
Cleveland continues to gain positive momentum in its downtown, with several large tenants seeking space and more than 1.8 million square feet of new product in the development pipeline.
Construction activity also remains heightened for Columbus with approximately 800,000 square feet of office product currently under construction or in the pipeline.
In Detroit, strong absorption numbers throughout the first three quarters of the year have tightened market fundamentals, but there is little expected movement in asking rents moving into 2013.
For more information on your city of interest, click through to download the complete Q3 analyses:
- Cincinnati (Office Insight | Office Statistics | Office Highlights)
- Cleveland (Office Insight | Office Statistics | Office Highlights)
- Columbus (Office Statistics | Office Highlights)
- Detroit (Office Insight | Office Statistics | Office Highlights)