This edition of the Northeast Ohio Economic Review looks at office real estate in the Cleveland Plus region. Today, the Cleveland Plus region has more occupied space than anytime in the past 5 years with total occupied space having increased to almost 112 million square feet. In addition, vacancy rates have drastically decreased by nearly 6% in the past 5 years. Charts and data contained within this report include office space use, occupancy and vacancy, employment, unemployment, and gross regional product.
September 2008 Cleveland Plus Quarterly Economic Review
1. Our partners include:
Greater Cleveland Partnership
Greater Akron Chamber
Stark Development Board
Team Lorain County
Youngstown-Warren Regional Chamber
Medina County Economic Development Corporation
Northeast
Ohio
Economic
Review
September 2008
Volume 2, Issue 3
The office space
market in Cleveland
Plus continues
™
to thrive.
2. In our last report released in June 2008, Team Northeast Ohio showed that the industrial real
estate market is strong, and demand is growing in the region. This edition looks at how the market
for office space is faring in our 16-county Cleveland Plus™ region.
The demand for space in the Northeast Ohio office market
continues to grow.
NEO Total Occupied Office Space: 2003–2008
The office space market in Northeast Ohio is strong, with
occupied Class A, B and C space up nearly 5% since Q1 112
2004. There is more occupied space in Q2 2008 than 111
Square Feet (Millions)
anytime in the past five years, as total occupied space has 110
increased to almost 112 million square feet. 109
108
Noting the solid demand for office space, the Real Estate 107
Research Corporation (RERC), lists Cleveland favorably as
106
one of the top 5 office markets to watch in 2008.
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2003 2004 2005 2006 2007 2008
377
33,859,369 377,157,582
376
34,589,053 376,484,148
Even in the face of a soft national economy, the demand for
space in the Northeast Ohio office market continues to grow. Source: CoStar Office Data
According to the Grubb and Ellis Q2 2008 office report, asking rents are rumored to be in the low- to mid-$30s for significant new
developments, the highest rates ever quoted for commercial business district office space.
U.S. Office Market Vacancy Rates
New York City 5.6%
8.7%
Los Angeles
San Francisco 9.8%
Boston 10.3%
Minneapolis 10.4%
Milwaukee 11.4%
Columbus 11.7%
Austin 11.7%
Pittsburgh 11.8%
Orlando 11.9%
Northeast Ohio’s vacancy rate of 12.1% is Houston 12.0%
nearly on par with the U.S. average of 11.5%, Baltimore 12.0%
Market
Northeast Ohio 12.1%
and is notably lower than many major U.S. Kansas City 12.1%
markets. As noted in the graph to the right, San Diego 12.6%
Northeast Ohio’s vacancy rate is lower than the Indianapolis 12.7%
San Diego, Chicago, Atlanta, Phoenix, Cincinnati 12.8%
Denver 13.0%
Las Vegas and Dallas markets. Chicago 13.2%
14.3%
Atlanta
Furthermore, when viewed by class type, Class Phoenix 15.7%
A vacancy rates have drastically decreased by Las Vegas 16.2%
nearly 6% in the past five years. Class B and C Dallas/ Ft. Worth 16.7%
Detroit 17.5%
vacancy rates have remained stable.
0.0% 5.0% 10.0% 15.0% 20.0%
Vacancy Rate
Source: CoStar Office Data
3. The February 2008 Heartland Real Estate B
office market can best be described curre
Northeast Ohio Class A Occupied Space: 2003–2008
19,000,000
18,000,000
Square Feet
17,000,000
16,000,000
15,000,000
14,000,000
2003 2004 2005 2006 2007 2008
Source: CoStar Office Data
As depicted in the graph above, occupied Class A office space has increased nearly 17% since 2003 and should
continue to grow. Class A occupied space represents nearly 17% of the total occupied space.
Northeast Ohio Office Vacancy Rates: 2003–2008
20.0%
18.0%
16.0%
14.0%
Vacancy Rate
12.0%
10.0%
8.0%
6.0%
Q1
Q1
Q1
Q1
Q3
Q1
Q3
Q1
Q2
Q2
Q3
Q4
Q3
Q4
Q4
Q3
Q4
Q4
Q2
Q2
Q2
Q2
2006
2003 2004 2005 2007 2008
Class A Vacancy Class B Vacancy Class C Vacancy
Source: CoStar Office Data
This graph displays the vacancy rates of Northeast Ohio office space broken down by property class. Class
A, B and C office space is distinguished by many factors, including building age, infrastructure, location,
amenities and architectural significance. Class A space is the most highly valued investment grade property,
with Class B space representing a good value, and Class C space as generally utilitarian.
4. siness Journal states the Cleveland
ntly as one with steady, positive growth.
NEO Office Vacancy Rates by MSA: 2003–2008
18.0%
16.0%
14.0%
Vacancy Rate
12.0%
10.0%
8.0%
6.0%
4.0%
Q1
Q1
Q1
Q1
Q1
Q1
Q2
Q2
Q2
Q2
Q2
Q2
Q3
Q4
Q3
Q4
Q3
Q4
Q3
Q4
Q3
Q4
2003 2004 2005 2006 2007 2008
NEO Canton-Massillon MSA
Cleveland-Elyria-Mentor MSA Youngstown-Warren-Boardman MSA
Akron MSA
Source: CoStar Office Data
“The office space activity
The graph above depicts office vacancy rates by
Metropolitan Statistical Areas (MSA) within the
16-county region. The vacancy rate for all metro
in the Akron area, now
areas (where trend data is available) has shown
decline in the last five quarters.
and in the near future, is
Due to data limitations, trend data for the Canton-
Massillon MSA and the Youngstown-Warren-
supported by the growth
Boardman MSA are not available.* However,
the snapshot of current conditions indicates low
vacancy rates in both markets.
and alliances being
seen by our medical and
educational institutions.”
—Michael G. Wojno, founder and managing
member for Wojno Development
5. Northeast Ohio employment picture
mirrors challenging economic times.
Quarterly Unemployment Rate
7.5%
7.0%
The regional unemployment rate has 6.5%
been following the pattern of both the
U.S. and Ohio. The trends for all three 6.0%
have been similar up until this past 5.5%
quarter when the unemployment rate for
Northeast Ohio increased while the rate 5.0%
for Ohio and the U.S. saw a moderate 4.5%
decrease. Of note is an increase in
4.0%
Northeast Ohio’s labor pool, reaching the
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q3
Q3
Q3
Q3
Q3
Q3
highest point in the last five years.
Q1
Q4
Q1
Q4
Q1
Q4
Q1
Q4
Q1
Q4
Q1
Q4
Q1
2002 2003 2004 2005 2006 2007 2008
NEO 16 Ohio U.S.
Source: Ohio Labor Market Information (LAUS Data)
Northeast Ohio Total Employment This chart shows the total jobs in
(Not Seasonally Adjusted) Northeast Ohio without seasonal
adjustment. Looking at the history for
2.08
each quarter makes it easier to see
2.06
year-to-year comparisons. The overall
2.04
trend also illustrates the seasonal pattern
2.02 in employment. Total jobs usually are
(Millions)
highest in Q3 and lowest in Q1.
2.00
1.98
Total employment in Northeast Ohio
1.96
declined to just under 2 million workers
1.94
in Q1 of 2008. Total employment
2002
2003
2004
2005
2006
2007
2008
2002
2003
2004
2005
2006
2007
2008
2002
2003
2004
2005
2006
2007
2002
2003
2004
2005
2006
2007
increased to 2.03 million workers in Q2.
While total employment was lagging a
Q1 Q2 Q3 Q4
year ago, typical seasonal improvement
was realized.
Source: Ohio Labor Market Information (LAUS Data)
6. Northeast Ohio: Real GRP
Modest growth Billions (2007 Dollars)
expected to $190
0.9%
0.7% 0.2%
continue through
$180
1.1%
12.6%
1.8%
$170 0.3% (-1.9)% 1.2%
2.6% 1.2%
4.8%
2008. $160 3.0%
3.8%
$150 5.1%
0.3%
3.6%
$140
As reported in the June 2008 issue,
Northeast Ohio is seeing its seventh $130
consecutive year of growth which will mean $120
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
we have grown in 14 of the last 15 years.
Real GRP Average Annual Growth = 1.9%
Moody’s Economy.com expects modest
growth to continue through 2008.The 2008
Source: Moody’s Economy.com
number was adjusted down as was 2007. Note: At the time of printing, the latest GRP statistics were not available.
This data comes from Moody’s Economy.com, which continues to revise its estimates. Even now, 2007 remains an estimated number.
It comes as no surprise that these numbers were adjusted down, as we know the economy weakened at the end of 2007 and the
beginning of 2008. The gap between the Average Annual Growth trend line and the 2007 and 2008 bars is representative of softness in
both the national and local economies.
About Team NEO
Team NEO markets Northeast Ohio to attract business investment in targeted industry clusters. The organization is a joint venture of the
largest metro chambers, representing 16 counties and their 4 million people. Team NEO serves as a central resource, informing and
serving those considering investment in Northeast Ohio and is a co-founder of the Cleveland Plus™ Marketing Alliance, a coalition to
drive strategic, long-term marketing for Northeast Ohio. For more information, visit www.teamneo.org.
Data Sources: Team Northeast Ohio uses a number of data sources for the Regional Economic Review. One of the primary sources is the Moody’s Economy.com
(www.economy.com) Northeast Ohio modeling system. This firm is the leading independent provider of economic, financial and industry research and data that
specializes in national and metropolitan economic growth forecasts. Moody’s Economy.com county level output, employment and payroll historical data are estimated
from several publicly available sources and are summarized into the Team NEO regional footprint. It is important to understand data provided by Economy.com are
estimates of economic activity.
Ashtabula
Lake
Team NEO also uses data from federal and state sources as part of the report. As with Economy.com, the information for the
Team NEO footprint is derived from data reported at either the county or metropolitan level. We rely heavily on data from the U.S.
Bureau of Labor Statistics (www.bls.gov) and Ohio’s Labor Market Information (www.lmi.state.oh.us) for information on wages, Cleveland Geauga
unemployment and both general and industry-specific employment. In addition, Team NEO uses data from the Census (www. Cuyahoga
census.gov) to track housing-related activity including the number of single and multifamily permits, as well as their values. Trumbull
Lorain
Office data for this edition was derived from the CoStar Group. The CoStar Group is a leading provider of commercial Summit Portage
real estate data throughout the United States, covering more than 58 billion square feet of property throughout the Youngstown
Medina Akron
country. Mahoning
Due to market limits within the CoStar database, historic trend data for the Team NEO region is defined as 10 of
Ashland
the 16 counties forming the regional footprint. These counties include Ashtabula, Cuyahoga, Geauga, Lake, Lorain, Wayne Columbiana
Canton
Medina, Portage, Richland, Stark and Summit. Richland Stark
*Furthermore, CoStar does not offer data for the Mansfield MSA, so it is excluded from the NEO Office Vacancy Rates Carroll
by MSA: 2003–2008 chart.
Cleveland Plus 16-County Region
737 Bolivar Road, Suite 2000, Cleveland, Ohio 44115
888.NEO.1411 • www.teamneo.org • www.clevelandplusbusiness.com