By: Andrew Batson, Senior Research Analyst, Great Lakes Region, Jones Lang LaSalle
From a national perspective, “for the first time in almost seven years, the majority of markets Jones Lang LaSalle tracks sit in landlord-favorable territory,” as reported by JLL’s Q3 U.S. Office Outlook. Demand continues to grow, and new construction projects across the country are forecasted for completion in 2015.
Looking specifically at the Midwest, the commercial real estate market has experienced a steady increase in leasing activity from Q1 to Q3. Vacancy rates are slowly decreasing as rent continues on a steady uptick. Overall, more and more companies are entering the market for new or expanded space, signifying a positive progression in the Midwest economy. Trends indicate signs of a stable improvement throughout 2014.
During Q3, Smith/Hallemann Partners purchased the Atrium One building from Convergys, for $43.4 million. The building is located in Cincinnati’s Central Business District (CBD), an area in which Smith/Hallemann Partners considers “one of the most dynamic and evolving markets in the country,” according to JLL’s Cincinnati Office Highlights.
Almost 84% of Atrium One’s 572,000 square feet is currently leased. Other tenants include Omnicare Inc., Accenture LLP and NorthgateArinso. JLL represented Convergys in the deal.
Q3 Market Activity
Touring activity, leasing activity and sales volume all remained stable during the third quarter. In big leasing news, PowerNet Global relocated to the Mason/Montgomery submarket for increased cost savings. The company’s headquarters is now located at 8805 Governors Hill Drive, reducing its total square footage by 36,000 square feet.
Pure Romance has entered the market for downtown space in Cincinnati or Northern Kentucky. The company has shown initial interest in new developments at The Banks and Over-The-Rhine. Also during Q3, Duke Realty put eight Cincinnati office buildings up for sale; five of the properties are based in West Chester.
Construction deliveries and construction starts also remained stable. Dunnhumby USA continued its $100 million mixed-use construction project at its new headquarters. With plans to officially relocate in 2014, the new facility will include retail and office space and a parking garage. Paycor Inc. also continued construction on its new headquarters during Q3. The 136,000 square foot facility in Linden Pointe Office Park will eventually accommodate approximately 500 employees.
After searching the market for two years, OMNOVA Solutions announced that it will relocate its headquarters to an 8.5-acre property in Beachwood. OMNOVA will begin construction on a 57,000 square foot building this fall—forecasted for completion in 2014. The company has intentions to add approximately 70 jobs at its new headquarters. JLL assisted OMNOVA throughout the site selection process.
Q3 Market Activity
Leasing volume remained flat during Q3. OM Group Inc. announced that it will leave Cleveland’s tallest building, the Key Tower, for space on the 13th floor of the Ernst & Young Tower. Forecasted to move by January 2014, OM Group will occupy about 27,000 square feet.
Veritix, a company that operates a digital ticketing platform, has outgrown its current space at the Chase Financial Tower and has entered the market for downtown space.
Sales volume increased during Q3, while construction deliveries and starts remained stable. During Q3, Rock Ohio Caesars bought downtown Cleveland’s Higbee-Building for $79 million. Rock Ohio Caesars, which also manages the first four floors of Cleveland’s Horseshoe Casino, has yet to release plans for the 815,000 square foot building.
Also in Q3, K&D Group bought the former East Ohio Gas Headquarters on E. 9th Street from Sovereign Partners for $7.9 million. K&D will renovate the 346,000 square foot building into apartment units.
Columbus’ multi-million dollar investment in the River South portion of downtown has sparked new interest in the area. Daimler Group and Kaufman Development proposed an office and apartment project of immense proportions. The proposed $50 million mixed-use project includes the development of 136,000 square feet of office space, as well as 150 apartments, located at 250 S. High Street. High-rise development of this proportion has not been executed downtown since 2008 at The Condominiums at North Bank Park.
Q3 Market Activity
Touring and leasing activity remained stable in the third quarter. Columbia Gas increased its space commitment at its new headquarters in the Arena District (under construction) from 208,000 square feet to 279,000 square feet. The gas company signed a lease for 20 years. In other leasing news, Century Insurance moved into 60,000 square feet at 550 Polaris Parkway, with intentions to hire about 80 new employees in its expanded space.
Several tenants entered the market in Q3, including DataCenter.bz LLC and MXD Group. DataCenter.bz LLC is seeking a 200,000 square foot data center, and MXD has shown interest in property in New Albany.
Sales Volume, construction deliveries and construction starts all remained stable. New Mill Capital LLC, a private equity firm, purchased Bob Evans Farms Inc.’s 77,000 square foot headquarters in the south submarket. Bob Evans’ new location in New Albany—currently under construction—is forecasted for completion this fall.
Livonia-based Schostak Brothers & Company has proposed a $111 million office tower in downtown Detroit. No other office buildings have been constructed in the CBD since 2005. The proposed 320,000 square foot tower will span 16 stories, including both retail space and a parking deck.
The tower has already secured its first tenant, Detroit-based Meridian Health Plan, which has signed a letter of intent for 300,000 square feet. Expect to see construction in the summer of 2014.
Q3 Market Activity
Leasing volume increased during the third quarter. Auto Supplier Federal-Mogul leased 180,000 square feet at the Arboretum Office Complex’s 360,000 square foot facility.
Molina Healthcare’s announced that it has entered the market for a 120,000 square foot space, and is seeking opportunities in the Troy submarket.
Sales volume remained flat, as well as construction deliveries, while construction starts increased. Redevelopment at The David Whitney Building continued in Q3. The currently vacant space is being converted into an Aloft hotel, retail space, as well as more than 100 apartment units.
The Liberty Center, home to the Westin Hotel and 526,000 square feet of office space, was sold to Starwood Capital Group during Q3. The Liberty Center office tower sold for $59.7 million, and the hotel tower sold for $75.3 million. Starwood Capital Group plans to renovate various areas throughout the space, including lobbies, hotel rooms and restaurants.
Q3 Market Activity
Leasing volume and rents both increased during Q3. Ryan Homes signed a lease for space on the first three floors in Penn Center West’s Parkway West Corridor (43,000 square feet). PPG also announced that it will move from its Cranberry Woods location to a newly leased space located at Westinghouse Four.
With a lease expiration approaching in 2014, Direct Energy Business entered the market for 60,000 square feet of office space. Fifth Third Bank is also approaching its lease expiration, and has expressed interest in the proposed Garden at Market Square.
Construction deliveries and construction starts both remained flat during Q3. Construction at the 33-story, 800,000 square foot PNC Plaza building continued during Q3. The project is expected to be complete in the summer of 2015.
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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’s bio or connect with Andrew on LinkedIn.