Leasing activity and tenant demand in Cleveland looks quite strong. Office employment sectors have recorded sustained jobs growth over the last three years, which is translating into increased tenant demand.
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JLL Cleveland Office Insight - Q3 2015
1. Vacancy trends
Source: JLL Research
Rent trends
Source: JLL Research
Sales trends
Source: JLL Research
Tenant demand remains in expansionary mode
Leasing activity and tenant demand in Cleveland looks quite strong. Office
employment sectors have recorded sustained jobs growth over the last three
years, which is translating into increased tenant demand. Leasing activity
through the first three quarters of 2015 totaled more than 1.7 million square feet
and 85.5 percent of tenants signing leases were recorded as having stable or
growing footprints. Tenant demand is projected to remain in expansionary mode
into 2016 which will continue to place downward pressure on vacancy rates.
While both Class A and Class B assets will benefit from increase tenant demand,
look for the largest absorption gains to take place in the Class A space.
Rents are poised for meaningful growth
Asking rents in Cleveland have recorded modest appreciation following the Great
Recession. In the third quarter, Class A asking rents across the metro averaged
$22.26 per square foot while Class B rents averaged $17.51 per square foot.
Asking rents for both classes are little changed year-over-year, however, looking
over a five-year time horizon, Class A asking rents have appreciated 2.7 percent
while Class B asking rents have appreciated by just 50 basis points. Limited
office construction has meant that tenant demand has translated almost entirely
into vacancy compression, and with continued downward pressure on vacancy,
rents are poised for meaningful growth over the next three to five years.
As the market firms, landlords see property values appreciate
Sales activity has been intensifying in Cleveland and investment-grade assets
have been making up a larger percentage of trades in recent quarters. Landlords
are seeing property values appreciate amid improving market conditions and
recent offerings have garnished the interest of institutional investors as well as
international funds. In the third quarter, over $75 million worth of sales activity
was recorded, with an average sales price of $109 per square foot. The largest
trade of the quarter was Hertz Investment Group’s purchase of the Skylight
Office Tower from Forest City. The 321,000-square-foot, Class A office tower
was purchased for $35.4 million or $110 per square foot.
The market continues to firm, outlook is positive
2,257
Office Insight
Cleveland | Q3 2015
28,121,038
Total inventory (s.f.)
-39,751
Q3 2015 net absorption (s.f.)
$18.80
Direct average asking rent
0
Total under construction (s.f.)
20.2%
Total vacancy
46,964
YTD net absorption (s.f.)
-1.0%
12-month rent growth
0.0%
Total preleased
14%
20%
26%
2011 2012 2013 2014 YTD 2015
Class A Class B
$16
$20
$24
2011 2012 2013 2014 YTD 2015
Class A Class B
$40
$80
$120
2011 2012 2013 2014 2015
Average Sales Price ($/s.f.)
YTD