Like other markets throughout the region, Cincinnati’s retail market was slow to recover from the Great Recession. But it has now turned the corner and is in the midst of an upswing in both transaction velocity and leasing momentum. Overall, the recovering Cincinnati economy is drawing investors to the market and sales of retail assets will continue to gain traction. Single-tenant assets have never been more popular among private investors as evidenced by cap rates that have fallen to levels that would have amazed most industry watchers in 2007. Cap rates have compressed to the point that some long-term ground leases are trading in the mid-4 percent range, while best-of-class fee simple property yields begin 100 to 150 basis points higher. A number of investors are targeting single-tenant, net-leased assets with lower-credit tenants or leases that will expire in the near future with the potential to re-sign or re-tenant the property, trading at yields starting in the 6 percent range. In the multi-tenant segment, investors are scouring the market for grocery-anchored deals, though limited supply will hinder transactions. Value-add plays are popular with private buyers across the metro area, providing owners in low-profile submarkets the opportunity to cash out while …
Midwest Market Reports
Most retail brokers in Des Moines are cautiously optimistic in their expectations for 2013. For the first time in years, I’m seeing a lot of site plans for new retail developments come across my desk. Several projects that had been on the back burner for the last few years have finally begun to take shape. Des Moines, like most markets, got hurt when the Great Recession hit. However, with its major industry based in insurance, it weathered the storm better than many other markets. At its high point, the unemployment rate was 6.8 percent, and the rate as of May was 4.3 percent. The Des Moines retail market didn’t get nearly as overbuilt as many of the other nearby larger markets. There wasn’t a ton of first-generation space that sat vacant on the retail market in Des Moines once the recession hit. Most of the retail developers here are conservative. Much of the first-generation space that sat vacant was the result of lenders taking back the properties and not wanting to invest any money in those assets. Lessons Learned The developers in today’s market have a more disciplined approach than many of their predecessors. There was a time when real …
The Cincinnati office market recorded positive net absorption of 74,378 square feet during the first quarter of 2013 while the overall vacancy rate dipped slightly to about 23.2 percent. The forecast from Cassidy Turley is for Class A submarkets to become tighter as medical and service industries continue to drive absorption. However, the increasing success of the Class A sector has come at the expense of Class B space. First-quarter Class A direct vacancy in the metro Cincinnati office market stood at approximately 20 percent, while Class B direct vacancy was about 28 percent. That’s a stark contrast from 2004 and 2005, when Cincinnati’s office vacancy rate was 10 percent for Class A space and 17 to 18 percent for Class B space. “If you look back eight to nine years, that’s where [the vacancy rates] stayed during good times,” says Scott Abernethy, senior vice president and principal in Cassidy Turley’s Cincinnati office. When the market took a hit during the 2008 to 2010 period, large vacancies popped up, forcing landlords of Class A buildings to lower rental rates. That in turn created deal incentives for Class B tenants to move to newer facilities. “Class B tenants can move over …
For the first half of 2013, the Cincinnati industrial market has reflected the growing strength of the broader economy, while gaining momentum alongside the manufacturing sector. The increased activity seen thus far has left fewer options for tenants in the market and increased leverage for landlords in negotiations for relocations, expansions and renewals. As supply tightens, new speculative construction will likely fall short of the demands of the marketplace. This trend will likely continue into 2014. Tenant Activity Accelerates While there has certainly been an uptick in the volume of prospects touring properties, these businesses are more committed to a course of action than we have seen in the last few years. Further, these companies are increasingly optimistic and giving consideration to larger spaces to accommodate future growth and longer lease terms in order to lock in today’s aggressive lease rates. Similarly, tenants in older properties are seizing this opportunity to move into more modern spaces, causing a shift in the quality of vacant inventory. A cautious mood remains, as lease negotiations continue to involve discussions of termination options and other risk-mitigation language. The northern Cincinnati suburbs have been active in the first half of the year, with more than …
The figures for past and projected new industrial building completions are anemic in Northeast Ohio, leaving a lot of commercial real estate brokers concerned that there will not be enough buildings to meet a steady increase in buyer and tenant demand. From 2008 to 2012, a paltry 1.4 million square feet of new industrial buildings were added to the Cleveland landscape, the majority of which were designed specifically for owner occupants or were fully pre-leased. Projected new construction, as reported by real estate research firm Reis, does suggest an increase in future building velocity. However, absorption is forecast to outpace new buildings through 2017 by a factor of 4 to 1. If this were to occur, Cleveland would see a drop in vacancy rates to historically low levels, approaching five to six percent. That may not seem alarming to some observers, but when you back out functionally obsolete inventory in some of the older pockets of industry, the true vacancy rate will hover at or below four percent. “There is simply not enough product to show prospective buyers and tenants,” says Robert Wetzel of CRESCO Real Estate. “We hope this spurs some speculative construction. Depending on a prospect’s needs, we …
The weather in Cleveland in the springtime is notoriously changeable — sunny and warm one minute and then cloudy and chilly the next. The current state of Cleveland’s office market is similarly uneven. The sunniest segment is clearly the Class A market in the Central Business District (CBD). Ernst & Young Tower, Cleveland’s first multi-tenant downtown office building in more than two decades, recently opened at close to a 90 percent occupancy rate. Despite an asking rental rate in the low $30 per square foot range, which represents the top of the market, this 487,000-square-foot tower illustrates a substantial pent-up demand for new, efficient office space. The balance of existing Class A properties in the CBD are also performing well, with an average vacancy rate of 15.7 percent at the end of the first quarter. And the overall momentum downtown is strong. Nearly $1 billion of development has occurred during the past 24 months, including a new casino, convention center and medical mart completed this year. Additionally, a new headquarters for the Cuyahoga County government will be completed next year. All of these factors increase the likelihood that another office project in the CBD will start soon. Downtown’s Class B …
Cleveland's retail market is continuing to slowly recover from the effects of the recent recession. This recovery is sparked by a number of factors. One of the brightest spots in the Cleveland retail market is the revival of downtown, which is bringing businesses, residents and retailers to the area, stabilizing the metro’s core. The number of visitors to downtown Cleveland is expected to double from 3 million in 2012 to 6 million in 2013, largely drawn by the opening of the Horseshoe Casino Cleveland last year. The completion of the highly anticipated Cleveland Medical Mart & Convention Center is also contributing to increased traffic. Several large conferences have already been booked and area retailers will benefit greatly from convention center traffic as visitors eat at local restaurants and shop at nearby stores. In addition to tourism, the daytime population of downtown is increasing as several employers move or expand offices. This growth is encouraging many residents to locate in proximity to these jobs, and the rising housing demand has spurred apartment development throughout downtown neighborhoods. As retailers expand in the area to serve this residential population, retail operators will benefit from rising occupancies and rents. Improving Vital Signs Cleveland’s economy …
Like many markets in the Midwest and across the U.S., the Columbus industrial sector started the year sluggishly. First-quarter net absorption fell into the red with few notable leases to report, although a couple of significant investment sales closed. Generally, industrial activity is back-loaded into the second half of most years, and that should be the case for Columbus in 2013. Also, few markets have brighter long-term prospects than Central Ohio. After closing the fourth quarter of 2012 with 500,000 square feet of net absorption, Central Ohio’s 260-million-square-foot industrial market gave back 239,439 square feet in the first quarter of 2013, resulting in an 8.9 percent vacancy rate. The bulk warehouse sector suffered through 833,816 square feet of negative net absorption in the first quarter, resulting in a jump in the vacancy rate of 233 basis points to 10.6 percent. Bare Escentuals, a cosmetics retailer, registered the first quarter’s biggest industrial lease, expanding by 102,155 square feet to claim the entire 512,113-square-foot building at 5255 Centerpoint Drive. While leasing trudged along, a few investment sales took place in the first quarter of 2013, with notable deals including the sale of two buildings by KTR Capital Partners to affiliates of Welsh …
The recession negatively affected local, regional and national banks in Minneapolis/St. Paul and all commercial real estate product types. A wide range of real estate owned (REO) assets have sold in recent years, including single- and multi-tenant office buildings, industrial buildings, convenience stores, office condos, residential condos in bulk blocks, raw land, a campground, a historic warehouse, hotels — just about everything. The biggest sector of bank REO property has been land, particularly residential development land. Nevertheless, the start of the housing recovery has seen a reduction in the inventory of individual residential lots coupled with increased interest in some of our larger residential development sites from national homebuilders. While most of the insurance companies exited the Minneapolis commercial real estate market years ago, one of the national insurance companies did repossess a large Class A office property last year and sold it to a local investment group for a dollar more than the loan, which was $110 million. Zeller Realty Corp. of Chicago and Atlanta-based Invesco acquired the Fifth Street Towers from MetLife in April 2012. The buildings (two towers) were built in 1987 and 1988, and consist of roughly 1 million square feet. The group that lost the …
In the immediate wake of the Great Recession (version 2.0), it was not uncommon to see halted development projects in greater Cincinnati. Now that the economy has rebounded, retail development has started to follow suit. However, the original developers that began many of the region’s key projects aren’t necessarily the ones finishing them. What follows is a summary of some key projects in various stages of completion that have had to adapt to changing market conditions and consumer preferences. Oakley Station Among the high-profile projects in the greater Cincinnati market that have undergone changes in development direction is Oakley Station. This former 74-acre Cincinnati Milacron complex, originally known as the Millworks project, was conceived as a Main Street-focused lifestyle center supplemented by structured parking that would incorporate some of the existing industrial structures. Once the recession hit, the project fell victim to the nationwide lending freeze and tenants’ slowing growth plans, making it difficult to move beyond the project’s design stage. However, given the location in the geographic center of Cincinnati and the easy access to interstates, Oakley Station was always prime real estate and stayed on developers’ radar screens. Now being developed by Vandercar Holdings, the developer responsible for …