Cleveland ushers in a new set of landlords as improving market conditions attract out-of-state investors

1. JLL Research
Cleveland | Q3 2017
Office
Outlook
An in-depth look at the
Cleveland office market.
Analysis includes leasing,
sales, construction and
employment.

2. © 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Q3 2017
Insight
The composition of ownership in Cleveland’s office market has changed
dramatically in recent years. Annual sales volumes have increased steadily
since 2010 and are now approaching prerecession levels. In just the last two
years, more than $550.0 million worth of office assets traded hands in
Cleveland. What is unique about this cycle is the increased level of investment
from out-of-state firms. Three groups in particular have amassed significant
portfolios in Cleveland: Hertz, Shelbourne and Somera Road. These investors
have acquired more than 3.0 million square feet of office space in Cleveland
through transactions totaling $301.8 million. A common set of themes led
these groups and others to make investments in Cleveland, including higher
yield returns, relatively low barriers to entry, and Cleveland’s underlying
market fundamentals.
So what does all this mean for tenants? Many of the recent transfers can be
categorized as value-add investments, and the new owners have signaled
their intent to make significant upgrades to the properties. Tenants will enjoy
additional amenities, upgraded finishes in common areas, and improvements
to the building's operating systems. However, along with these upgrades,
landlords will command higher rents on renewals and new lease
negotiations.
Outlook
Fundamentals in the Cleveland office market will continue to improve into
2018. Demand growth will remain modest in the 1.0 percent range, while
limited construction will ensure a continued decline in vacancy. This will be
particularly pronounced downtown where residential conversions are rapidly
shifting market conditions. Rents will continue to appreciate gradually as the
market tightens and owners reposition assets. Investment activity will remain
elevated with nearly 3.0 million square feet of product on the market.
Fundamentals Forecast
YTD net absorption 124,670 s.f. ▲
Under construction 325,000 s.f. ▶
Total vacancy 18.6% ▼
Average asking rent (gross) $19.30 p.s.f. ▲
Concessions Falling ▼
-250,000
250,000
750,000
2013 2014 2015 2016 YTD
2017
Supply and demand (s.f.) Net absorption
Deliveries
Cleveland ushers in a new set of landlords as improving
market conditions attract out-of-state investors
20.6%
19.9% 20.0%
19.0%
18.6%
2013 2014 2015 2016 2017
Total vacancy
$15.00
$18.00
$21.00
$24.00
2013 2014 2015 2016 2017
Average asking rents ($/s.f.) Class A
Class B
Cleveland Office Outlook
• Sales volumes have increased steadily since 2010 and are now
approaching prerecession levels; driven in part by out-of-state investors.
• New owners plan to reposition their assets. Tenants will enjoy upgraded
finishes and added amenities, however, higher rents are likely to follow.
• A number of office developments will deliver over the next year. Look for
leasing to accelerate at these projects as they near completion.

3. © 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Q3 2017
Statistics
Cleveland Office Outlook
Class
Inventory
(s.f.)
Total net
absorption
(s.f.)
YTD total net
absorption
(s.f.)
YTD total net
absorption
(% of stock)
Direct
vacancy (%)
Total
vacancy (%)
Average
direct asking
rent ($p.s.f.)
YTD
completions
(s.f.)
Under
construction
(s.f.)
CBD Totals 15,345,311 139,460 209,765 1.4% 19.1% 20.0% $19.89 0 0
Northeast Totals 557,695 1,844 -33,266 -6.0% 28.8% 29.8% $15.82 0 0
East Totals 3,779,116 -49,779 10,405 0.3% 12.3% 12.9% $21.03 0 325,000
Southeast Totals 992,906 -22,677 -23,947 -2.4% 10.1% 12.8% $17.62 0 0
South Totals 4,788,748 22,231 -19,895 -0.4% 16.5% 18.1% $18.56 0 0
Southwest Totals 1,096,322 -12,727 -16,362 -1.5% 30.7% 30.7% $18.22 0 0
West Totals 1,680,832 -20,415 -2,030 -0.1% 11.5% 11.5% $17.00 0 0
Suburbs Totals 12,895,619 -81,523 -85,095 -0.7% 15.9% 16.9% $18.68 0 325,000
Cleveland Totals 28,240,930 57,937 124,670 0.4% 17.6% 18.6% $19.30 0 325,000
CBD A 5,854,816 28,198 5,730 0.1% 13.6% 14.3% $23.97 0 0
East A 1,787,285 -22,885 -6,152 -0.3% 9.5% 9.5% $24.20 0 325,000
Southeast A 241,105 0 6,868 2.8% 0.1% 4.4% $22.00 0 0
South A 1,839,945 -41,483 -49,278 -2.7% 15.2% 17.0% $21.44 0 0
Southwest A 88,000 -4,116 -8,539 -9.7% 16.1% 16.1% $0.00 0 0
West A 539,951 -12,119 -3,179 -0.6% 6.8% 6.8% $18.90 0 0
Suburbs A 4,496,286 -80,603 -60,280 -1.3% 11.1% 12.1% $21.98 0 325,000
Cleveland A 10,351,102 -52,405 -54,550 -0.5% 12.5% 13.3% $23.03 0 325,000
CBD B 9,490,495 111,262 204,035 2.1% 22.5% 23.5% $18.60 0 0
Northeast B 557,695 1,844 -33,266 -6.0% 28.8% 29.8% $15.82 0 0
East B 1,991,831 -26,894 16,557 0.8% 14.8% 16.0% $19.41 0 0
Southeast B 751,801 -22,677 -30,815 -4.1% 13.3% 15.5% $17.60 0 0
South B 2,948,803 63,714 29,383 1.0% 17.2% 18.8% $17.50 0 0
Southwest B 1,008,322 -8,611 -7,823 -0.8% 32.0% 32.0% $18.08 0 0
West B 1,140,881 -8,296 1,149 0.1% 13.8% 13.8% $16.21 0 0
Suburbs B 8,399,333 -920 -24,815 -0.3% 18.4% 19.5% $17.69 0 0
Cleveland B 17,889,828 110,342 179,220 1.0% 20.6% 21.6% $18.15 0 0

4. © 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Q3 2017
Construction
Cleveland Office Outlook
Estimated completion:
Q2 2018
Estimated completion:
Q4 2017
Address: 20159 Van Aken
Square feet: 66,000
Tenant(s): ABA, RMS, and others
Owner: RMS Investment
Address: 3900 Park East
Square feet: 47,000
Tenant(s): Glenmede
Owner: Palmieri Enterprises
Address: 5900 Euclid Avenue
Square feet: 61,000
Tenant(s): TBD
Owner: Hemingway Development
Estimated completion:
Q4 2017
Address: 100-200 Park Avenue
Square feet: 150,000
Tenant(s): Alliance Prime and others
Owner: Fairmount Properties
Estimated completion:
Q2 2018

5. © 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Q3 2017
Leasing
Cleveland Office Outlook
This report analyzes leasing activity ≥ 5,000 square feet over a 12 month period, ending September 30, 2017.
Leasing activity by size
1,711,143
86
919,046
670,598
121,499
1,119,443
591,700
Growing Shrinking Stable
868,933
624,220
217,990
Notable leasing transactions
Submarket Size Footprint
Forest City Enterprises 127 Public Square CBD 147,795 New Lease Shrinking
Benesch 200 Public Square CBD 120,088 Renewal Stable
McDonald Hopkins 600 Superior Avenue CBD 78,951 Renewal Stable
The Revenue Group 3711 Chester Avenue Midtown 69,223 New Lease Growing
Farmers Insurance 5990 West Creek Road South 63,212 Renewal Stable
PriceWaterhouseCoopers 200 Public Square CBD 60,027 Renewal Growing
Taft 200 Public Square CBD 52,000 Renewal Stable
The Millennia Companies 127 Public Square CBD 45,072 New Lease Growing
IBM 10500 Cedar Avenue Midtown 43,000 New Lease Stable
NRP Group 1228 Euclid Avenue CBD 39,523 New Lease Growing
Suburban leasing (s.f.)
Urban leasing (s.f.)
12 months at a glance
Class B leasing (s.f.)
Class C leasing (s.f.)
Leasing activity (s.f.)
Number of transactions
Class A leasing (s.f.)
Tenant footprint Leasing activity by industry
24 5 57
Type
Leasing activity by transaction type
New Lease
Renewal
Expansion/relocation in building
Tenant Address
2 4 5 11 64
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
80,000+ 60,000-79,999 40,000-59,999 20,000-39,999 5,000-19,999
Total s.f. leased Number of leases#
Leasing activityby submarket (s.f.)
58%
15%
10%
6%
7%
CBD
South
East
West
Midtown
Southwest
Southeast
Leasing activityby industry (s.f.)
29%
22%19%
15%
7%
5%
Financial services
Legal services
Real estate
Professional and business services
Scientific and technical
Public andprivate institutions
Other

6. © 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
20%
17%
14%13%
11%
10%
6%
Educational & Health Services
Trade, Transportation & Utilities
Professional & Business Services
Government
Manufacturing
Leisure & Hospitality
Financial Activities
Mining, Logging & Construction
Other Services
Information
Q3 2017
Employment
Cleveland Office Outlook
4.4%U.S. unemployment
1.5%U.S. 12-month job growth
6.6%Cleveland unemployment
1.3%Cleveland 12-month job growth
5.2%Ohio unemployment
0.9%Ohio 12-month job growth
0.0%
0.7%
1.4%
2.1%
2.8%
2013 2014 2015 2016 2017
Cleveland U.S.
-1,900
-700
-200
-100
0
600
700
800
1,700
7,700
-10,000-8,000-6,000-4,000-2,000 0 2,000 4,000 6,000 8,00010,000
Trade, Transportation & Utilities
Leisure & Hospitality
Manufacturing
Professional & Business Services
Information
Mining, Logging & Construction
Government
Other Services
Financial Activities
Educational & Health Services
-5.0
0.0
5.0
10.0
2013 2014 2015 2016 2017
Professional & Business Services Information
Government Financial Activities
0%
4%
8%
12%
900,000
1,000,000
1,100,000
2013 2014 2015 2016 2017
Employment Unemployment
Employment vs. unemployment rate
Employment by industry Office employment trends (12-month change, 000s)
Job growth by sector (12-month change)
Job growth (12-month change)
Job growth by sector (12-month change)

7. © 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
Andrew Batson
Vice President, Director of Research
+1 216 937 4374
andrew.batson@am.jll.com
Johnathan Miller
Research Analyst
+1 216 937 4381
johnathan.miller@am.jll.com
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In 2016, JLL had revenue of $6.8 billion and fee revenue of
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square feet, or 409 million square meters, and completed
sales acquisitions and finance transactions of
approximately $136 billion. At year-end 2016, JLL had
nearly 300 corporate offices, operations in over 80
countries and a global workforce of more than 77,000. As
of December 31, 2016, LaSalle Investment Management
has $60.1 billion of real estate under asset management.
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