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Cincinnati OH Office Trends Q3 2011
1. Q3 2011 | OFFICE
CINCINNATI, OH
THE KNOWLEDGE REPORT
CBD Steals the Show with Several
New Lease Signings
EXECUTIVE SUMMARY
The Greater Cincinnati office market had a flurry of activity in the third quarter of 2011. Several new
lease signings were a welcome sign for a market that has seen little to no growth over the past 24
months. The overall vacancy rate came in at 20.4% and net absorption of office space for the third
quarter totaled 85,568 square feet.
MARKET INDICATORS
Most activity occurred in the Central Business District (CBD), with several large lease signings taking
Q3 11 Q4 11*
place. Ohio Governor John Kasich played a huge role in the market by luring two Fortune 500
companies across the river from Kentucky to downtown Cincinnati. The incentives the Governor’s
VACANCY
office put on the table were too much for Omnicare and Nielsen to pass up. While this move was
NET ABSORPTION disappointing for the Northern Kentucky submarket, the Greater Cincinnati market received an
affirmation that these companies’ headquarters will remain in the region for some time to come.
CONSTRUCTION — —
Rental rates increased slightly from $17.78 per square foot to $17.91 per square foot. This increase,
RENTAL RATE — — although small, is good news for the Cincinnati market which has not seen rental rates increase in the
past several years.
*Projected Change to
Following Quarter Local employment and jobs growth continues to be the number one issue affecting the Cincinnati
market, as absorption of office space is tied directly to the growth of jobs. As the Governor’s office
continues to press forward, creating more jobs for the State of Ohio, we hope more outside companies
will look to our area for their relocation needs.
OVERALL VACANCY RATE COMPLETIONS VS ABSORPTION
Overall Vacancy Rate
25% 800,000 The Office Market saw 85,568
24%
600,000
square feet of positive absorption
this quarter.
Square Feet
23%
22% 400,000
21%
200,000
20%
19%
0
18%
3Q 09
4Q 09
1Q 10
2Q 10
3Q 10
4Q 10
1Q 11
2Q 11
3Q 11
-200,000
-400,000
3Q 09
4Q 09
1Q 10
2Q 10
3Q 10
4Q 10
1Q 11
2Q 11
3Q 11
Completions Absorption
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2. THE KNOWLEDGE REPORT | Q3 2011 | OFFICE | CINCINNATI
CENTRAL BUSINESS DISTRICT Looking into the next quarter, the next big
announcement in the CBD should come when Chiquita
The downtown Central Business District was the most
Brands International decides to stay in Greater
vibrant submarket in Greater Cincinnati, posting more
Cincinnati or relocate to a southeastern market outside
than 85,000 square feet of positive absorption for
of our region. The company has made headlines in
the third quarter of 2011. The quarterly absorption
recent weeks as it announced it is considering a move
doesn’t tell the story though, as the biggest headlines
out of state. Much debate has occurred on whether
were made with several large lease signings in the
Chiquita will stay or go. The produce company occupies
downtown market.
more than 150,000 square feet of Class A space in the
Chiquita Center on Fifth Street, so a move out of town
Omnicare signed a lease for 150,000 square feet at
will certainly affect the overall vacancy rate in the
Convergys’ Atrium I on Fourth Street, Nielsen signed a
downtown market.
lease for 85,000 square feet at the Chiquita Center and
Chiquita Center Vorys, Sater, Seymour and Pease LLP signed a lease
SUBURBAN MARKETS
for 75,000 square feet at Great American Tower. As
The suburban submarkets remained flat, as net
these companies have yet to move in, the majority of
absorption totaled negative 331 square feet. F+W
these new leases will not affect the vacancy rate
Publications decided to relocate further north, moving
AVG. ASKING RATES (PER SF-FULL SERVICE GROSS) until 2012.
62,000 square feet from Kenwood to Blue Ash. The
Average Rental Rate (Gross)
relocation out of Kenwood increased the vacancy rate
$18.25
Rental rates in the Central Business District averaged
in this submarket to 10.6%, marking the first time in
$22.93 per square foot for Class A space and $15.39
$18.00
several quarters the Kenwood submarket has hit a
per square foot for Class B space. These are gross
double digit vacancy rate. The Blue Ash submarket
$17.75 numbers, meaning the rental rate is the tenant’s
gained from this move, as well as a couple other new
all-inclusive rental payment, including taxes and
$17.50 deals in this area. Blue Ash posted 151,015 square feet
operating expenses.
1Q11
2Q11
3Q11
3Q 09
4Q 09
1Q 10
2Q 10
3Q 10
4Q 10
of overall net absorption, while the vacancy rate
dropped from 19.7% to 16.1%.
UPDATE Recent Transactions
LEASING ACTIVITY
PROPERTY SUBMARKET TENANT LANDLORD SIZE TYPE
Executive Center 1 Tri-County Humana Right Source 111 Merchant St Holdings 173,397 Direct Lease
Atrium I CBD Omnicare Convergys 150,000 Direct Lease
19 Broadcast Plaza CBD WXIX Broadcast Plaza LLC Tappan Properties 87,734 Sale
Chiquita Center CBD Nielsen Columbia Development 85,000 Direct Lease
Centre Pointe Office Park I-75 Corridor North GE Aviation Duke Realty 81,000 Direct Lease
Great American Tower CBD Vorys, Sater, Seymour and Pease Western & Southern 60,000 Direct Lease
11333 Cornell Park Drive Blue Ash Cornell Park Drive LLC State Automobile Mutual Insurance 28,998 Sale
600 Vine CBD Rendigs, Fry, Kiely & Dennis LLP Hertz Center 26,000 Direct Lease
Cornerstone Office Park Midtown Neace Lukens Cornerstone at Norwood LLC 26,000 Direct Lease
McCauley Place Blue Ash Catholic Health Partners Duke Realty 20,902 Direct Lease
Liberty Commons I-75 Corridor North Christ Hospital Liberty Medical LLC 17,213 Direct Lease
312 Plum Street CBD MCI Metro JV/CVG Partners LLC 17,205 Lease Renewal
11223 Cornell Park Drive Blue Ash Girl Scouts of America Dbi Properties LLC 17,000 Sale
Hawthorne Center Blue Ash Coca-Cola Company Al Neyer, Inc. 14,860 Direct Lease
Chemed Center CBD Greenebaum, Doll & McDonald, PLLC 255 Fifth Limited Partnership 12,021 Lease Expansion
Edgewood Medical Buildings NKY Combined Care Management N/A 11,660 Sale
8805 Governors Hill Drive I-71 Corridor North Camp Dresser & McKee New York Life Insurance Co. 10,150 Direct Lease
Harrison Business Center West Sure Seal Werster Erlene 10,000 Direct Lease
Transactions are believed to be accurate but not guaranteed.
P. 2 | COLLIERS INTERNATIONAL
3. THE KNOWLEDGE REPORT | Q3 2011 | OFFICE | CINCINNATI
AVERAGE
ASKING
TOTAL DIRECT SUBLEASE TOTAL VACANT OVERALL PRIOR QUARTER NET YTD NET RATE UNDER
INVENTORY VACANT SF VACANT SF SF VACANCY RATE VACANCY RATE ABSORPTION ABSORPTION (GROSS) CONSTRUCTION
BLUE ASH
Class A 2,679,557 461,434 0 461,434 17.2% 22.3% 136,282 110,631 $20.91 84,598
Class B 1,885,234 277,823 1,099 278,922 14.8% 15.6% 14,733 27,512 $15.56
Class C 368,274 53,936 0 53,936 14.6% 21.7% 0 330 $13.50
TOTAL 4,933,065 793,193 1,099 794,292 16.1% 19.7% 151,015 138,473 $18.70 84,598
CBD
Class A 8,866,525 1,557,473 70,467 1,627,940 18.4% 19.2% 77,273 314,790 $22.93
Class B 6,924,138 1,111,991 0 1,111,991 16.1% 16.3% 4,627 -56,274 $15.00
Class C 2,754,230 758,005 0 758,005 27.5% 24.6% 3,999 -288,577 $11.84
TOTAL 18,544,893 3,427,469 70,467 3,497,936 18.9% 19.0% 85,899 -30,061 $18.72
CBD PERIPHERY
Class A 1,264,688 395,036 5,428 400,464 31.7% 32.0% 4,393 4,220 $22.07
Class B 1,347,043 341,290 13,000 354,290 26.3% 27.6% 7,477 -8,375 $15.39
Class C 857,197 212,839 0 212,839 24.8% 21.5% -28,839 -26,386 $12.21
TOTAL 3,468,928 949,165 18,428 967,593 27.9% 27.7% -16,969 -30,541 $17.28
EAST
Class A 786,963 129,306 0 129,306 16.4% 12.8% -28,424 -26,639 $19.97
Class B 889,675 179,896 0 179,896 20.2% 20.8% 5,216 2,631 $14.01
Class C 641,989 140,427 0 140,427 21.9% 27.8% 38,022 38,849 $12.61
TOTAL 2,318,627 449,629 0 449,629 19.4% 20.0% 14,814 14,841 $15.32
I-71 CORRIDOR NORTH
Class A 2,816,264 618,470 0 618,470 22.0% 22.1% 4,792 34,701 $19.61
Class B 1,156,788 391,178 0 391,178 33.8% 34.9% 12,602 14,099 $15.50
Class C 35,040 0 0 0 0.0% 0.0% 0 0
TOTAL 4,008,092 1,009,648 0 1,009,648 25.2% 25.6% 17,394 48,800 $18.10
I-75 CORRIDOR NORTH
Class A 1,603,815 193,569 0 193,569 12.1% 13.1% 16,876 14,455 $21.00
Class B 501,094 56,351 0 56,351 11.2% 8.2% -15,039 -15,439 $18.47
Class C 167,891 28,387 0 28,387 16.9% 13.8% -5,273 -10,083 $11.68
TOTAL 2,272,800 278,307 0 278,307 12.2% 12.1% -3,436 -11,067 $19.57
KENWOOD/MONTGOMERY
Class A 944,328 126,958 5,736 132,694 14.1% 6.3% -72,786 -43,595 $26.45 109,000
Class B 939,605 151,687 0 151,687 16.1% 15.3% -7,622 -13,177 $17.92
Class C 44,955 0 0 0 0.0% 0.0% 0 1,500
TOTAL 1,928,888 278,645 5,736 284,381 14.7% 10.6% -80,408 -55,272 $22.04 109,000
MIDTOWN
Class A 1,276,956 167,189 0 167,189 13.1% 13.3% 2,328 3,624 $23.28
Class B 764,808 132,578 30,000 162,578 21.3% 19.8% -10,997 -53,418 $17.76
Class C 898,340 186,516 0 186,516 20.8% 19.5% 23,449 49,398 $13.16
TOTAL 2,940,104 486,283 30,000 516,283 17.6% 17.0% 14,780 -396 $17.91
NORTHERN KENTUCKY
Class A 3,517,813 643,687 0 643,687 18.3% 16.5% -38,243 43,531 $20.71
Class B 3,017,169 555,028 4,570 559,598 18.5% 20.9% 71,192 -26,912 $16.59
Class C 566,028 122,998 10,000 132,998 23.5% 19.0% -13,974 -13,099 $12.51
TOTAL 7,101,010 1,321,713 14,570 1,336,283 18.8% 18.6% 18,975 3,520 $18.42
TRI-COUNTY
Class A 1,741,868 534,317 7,487 541,804 31.1% 28.1% -52,487 3,581 $17.56
Class B 2,229,938 664,205 19,390 683,595 30.7% 30.2% -10,724 -16,358 $13.97
Class C 517,338 176,320 0 176,320 34.1% 28.1% -21,937 -26,109 $13.32
TOTAL 4,489,144 1,374,842 26,877 1,401,719 31.2% 29.1% -85,148 -38,886 $15.50
WEST
Class B 346,694 85,464 0 85,464 24.7% 23.1% -5,325 -19,572 $16.34 51,200
Class C 360,933 117,667 0 117,667 32.6% 25.4% -26,023 -31,337 $10.93
TOTAL 707,627 203,131 0 203,131 28.7% 24.3% -31,348 -50,909 $13.67 51,200
MARKET TOTALS
Class A 25,498,777 4,827,439 89,118 4,916,557 19.3% 19.4% 50,004 459,299 $21.35
Class B 20,002,186 3,947,491 68,059 4,015,550 20.1% 20.4% 66,140 -165,283 $15.39
Class C 7,212,215 1,797,095 10,000 1,807,095 25.1% 23.0% -30,576 -305,514 $12.30
TOTAL 52,713,178 10,572,025 167,177 10,739,202 20.4% 85,568 -11,498 $17.91 244,798
QUARTERLY COMPARISON
Q3-11 52,713,178 10,793,202 20.4% 85,568 $17.91
Q2-11 53,805,774 10,926,546 20.3% -57,767 $17.78
Q1-11 53,805,774 10,868,779 20.2% (39,299) $17.85
Q4-10 37,170,512 8,387,729 22.6% 164,236 $18.11
Q3-10 37,038,512 8,461,570 22.8% (19,950) $18.04
Q2-10 36,997,992 8,367,632 22.6% (5,736) $18.03
COLLIERS INTERNATIONAL | P. 3
4. THE KNOWLEDGE REPORT | Q3 2011 | OFFICE | CINCINNATI
Rental rates in the suburban submarkets averaged One major construction announcement that made
$17.49 per square foot for all property types. Class regional headlines was the start of the anticipated 512 offices in
A space in the suburbs was recorded at $20.42 Rookwood Exchange development in Norwood.
per square foot. This continues to make Class A This development was sidelined for the past three
61 countries on
space less expensive in the suburbs than Class A years, but has received the green light by its 6 continents
space in the CBD. developer Jeffrey R. Anderson Real Estate. The
first phase of this project will consist of a 123- United States: 125
Canada: 38
room Courtyard by Marriott Hotel and a 16-screen Latin America: 18
CONSTRUCTION movie theater that includes a 7,000 square foot Asia Pacific: 214
restaurant and bar with VIP balcony seating. The EMEA: 117
Too much economic uncertainty combined with
development will eventually include two large • $1.5 billion in annual revenue
high vacancy rates in most submarkets continues
upscale restaurants, office space and possibly two • 979 billion square feet under
to limit construction this year. As previously
additional hotels. management
reported, The Banks mixed-use development
• Over 12,000 professionals
continues to move forward, but no new office
space is anticipated anytime soon with this project.
FORECAST OFFICE TEAM:
Brian T. Graham, CCIM
Three sites in the suburban submarkets are moving The fourth quarter of 2011 should cool in terms of +1 513 562 2214
towards completion. These sites include the first new lease signings, but as tenants begin to move
R. Travis Likes, MCRE
phase of the FBI site in Kenwood totaling 109,000 into vacant space from deals signed previously this +1 513 562 2248
square feet, Duke Realty’s Western Ridge Medical year, we should see a small amount of positive Fred A. Macke, Jr., GRI, SIOR
Office Building, totaling 29,700 square feet and the absorption towards the end of December. This +1 513 562 2233
Urology Group in the midtown submarket, totaling positive absorption should put the year-to-date net Richard P. Meder, CCIM, SIOR
45,000 square feet. absorption back in the black, which is welcome +1 513 562 2253
news for the Greater Cincinnati Market. John P. Schenk, CCIM, SIOR
+1 513 562 2279
Matthew H. Smyth
+1 513 562 2260
OFFICE SUBMARKETS
Chris Vollmer, SIOR
+1 513 562 2244
OUTLYING WARREN
COUNTY Chris Vollmer, Jr.
+1 513 562 2242
I-75 NORTH OF CEO/PRESIDENT:
I-275 Shenan P. Murphy, CCIM
+1 513 721 4200
DIRECTOR OF RESEARCH:
Brian T. Graham, CCIM
I-71 NORTH OF I-275 +1 513 562 2214
TRI-COUNTY
BLUE ASH GRAPHIC DESIGNER:
WEST Ricky Dennis
+1 513 562 2213
KENWOOD/MONTGOMERY
Colliers International | Greater Cincinnati
425 Walnut Street, Suite 1200
MIDTOWN Cincinnati, OH 45202
CBD-PERIPHERY
3
EAST Colliers International
statistics are audited
annually and may result in
revisions to previously
INT’L reported quarterly and
AIRPORT final year-end figures
NORTHERN KENTUCKY Accelerating success.
8
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