Exactly how far vacancy rates fall downtown in 2015 remains to be seen as Key Bank hands back several floors at Key Tower and BakerHostetler sheds up to 45,000 square feet through a planned move.
1. Office-using employment sectors record steady gains
Continued employment growth will translate into moderately increased office
demand in Cleveland in 2015. According to the most recent estimates from the
BLS, total non-farm employment in Cleveland stood at ~1.0 million payrolls,
representing an annualized increase of 15,300 jobs or 1.5 percent. Meanwhile,
unemployment decreased 120 basis points year-over-year to 6.4 percent.
Office-using employment sectors experienced sustained employment expansion
over the last year, recording an annualized net gain of 3,100 jobs across the
metro. Employment gains were led by the professional and business services
sector, which added 1,500 jobs year-over-year.
Office employment trends (12-month change)
Source: JLL Research
Vacancy rates remain elevated, though gradually contracting downtown
Total vacancy in Cleveland stands at 20.3 percent, one of only six metropolitan
areas in the U.S. with vacancy above 20.0 percent. Elevated as it may be, the
rate has decreased steadily from its recent high water mark of 22.0 percent in
2011. With no multi-tenant office construction currently underway or scheduled to
break ground in 2015, any absorption gains will further tighten vacancy rates,
particularly downtown, where office-to-residential conversions are reducing the
available inventory. Exactly how far vacancy rates fall downtown in 2015 remains
to be seen as Key Bank hands back several floors at Key Tower and
BakerHostetler sheds up to 45,000 square feet through a planned move.
Vacancy rates
Source: JLL Research
Class A and B asking rents are slowly, very slowly, diverging
Asking rents are not particularly volatile in Cleveland, in fact, one might call them
unwavering. The average full service gross asking rent in Cleveland was $18.95
per square foot at the end of the first quarter, representing an increase of just
$0.18 per square foot over the last four years. We are however beginning to see
a divergence of asking rents between classes. Class A asking rents averaged
$22.94 per square foot at the end of the first quarter, up $0.17 year-over-year.
Oppositely, Class B asking rents averaged $17.36 per square foot, down $0.19
year-over-year. Over the coming year Class A asking rents are forecasted to
continue their gradual ascent while Class B asking rents will likely remain flat.
Asking rents
Source: JLL Research
20.3%
Total vacancy
38,870
Q1 2015 net absorption (s.f.)
-0.1%
12-month rent growth
0
Total under construction (s.f.)
0.0%
Total preleased
Office Insight
Cleveland | Q1 2015
Vacancy compression is steady, rents diverging
-10.0
0.0
10.0
2011 2012 2013 2014 Q1 2015
Financial Activities Professional & Business Services Information Government
17.0%
21.0%
25.0%
2011 2012 2013 2014 Q1 2015
Suburban Urban
$16.00
$20.00
$24.00
2011 2012 2013 2014 Q1 2015
Class A Class B
