With tenant demand increasing and retailers looking to expand in Cleveland, positive net absorption and limited development have created a balanced retail market that will lead to improvement and growth in 2012, according to Marcus & Millichap. The construction levels are relatively low with only 260,000 square feet of shopping center space scheduled to be completed this year, more than doubling last year’s 121,000 square feet. By comparison, 2008 saw 1 million square feet in retail completions. “When you look at it and put it in perspective versus construction levels seen during the last 10 years, it’s significantly below the levels we saw at the height of the market,” says Scott Wiles, a director and vice president within Marcus and Millichap’s National Retail Group. “It was an expected trend that last year was the low point for construction levels in the submarket, and that stems from 2009 and 2010 being very inactive leasing markets,” Wiles says. This year’s limited construction will aid Cleveland’s retail growth, however, in light of an uptick in leasing. “The positive thing about Cleveland is that we never see the construction levels that some of the sexier markets see, so it doesn’t throw our supply and …
Midwest Market Reports
Retail operations have likely bottomed in Cincinnati and will show signs of modest improvement through the remainder of 2012. Encouraged by a more stable job market and restored savings accounts, consumers are beginning to spend more freely. National retailers, which stalled expansion plans during the recession, will capitalize on discounted rents to move into prime retail corridors in Hamilton County and Northern Kentucky. Anchored shopping centers will outperform due to their ability to draw steady shopper traffic, keeping vacancy at Class A properties tight. The revitalization of the CBD will attract young professionals, while the recent opening of The Banks project will boost visitor volume. Demand will pick up for inline space within the area as restaurants and boutiques look to capture the increase in foot traffic. Developers who built in outlying areas will struggle to backfill unanchored strip centers. Until single- family home sales pick up, lenders will be unwilling to provide start-up financing for local retailers, leading to a weak recovery in tertiary markets. By the Numbers Employment gains are driving modest improvement in the retail sector. Cincinnati employers created 10,400 jobs during the first quarter. On a year-over-year basis, 20,300 jobs were generated, an increase of 2.1 …
The office sector has enjoyed a renewal of leasing activity in suburban Johnson County and South Kansas City, while the remainder of the market continues to be sluggish. Large tenants — 50,000 square feet and above — have accounted for most of the activity, whereas the smaller tenants have remained stagnant. The majority of tenants continue to renew their leases unless there is a compelling reason to relocate, such as a business expansion or downsizing. The economic uncertainty continues to be the most significant factor affecting the overall office market. However, many large space users have chosen to jump across the state line to relocate to either Kansas or Missouri due to the attractive economic incentives either state is offering. That trend has helped boost the overall leasing activity. In 2011, Johnson County and South Kansas City recorded net absorption of 646,000 square feet, which is remarkable considering the average for the entire Kansas City metro area since the late 1990s has been 401,000 square feet annually. This trend has continued in the first half of 2012 as tenants absorb large blocks of contiguous space. For example, Netsmart Technologies has leased 64,000 square feet in Overland Park, Kansas. Netsmart is …
Recently employed residents are forming new rental households in metro Chicago, generating positive net absorption, a decline in vacancy and a rise in apartment rents. Additional payroll growth will stimulate new demand and reduce marketwide vacancy to its lowest annual level in 5 years by year’s end to about 4 percent in the city and suburbs. Over the longer term, the market’s stature as a primary destination for college graduates should sustain a vacancy rate of approximately 4 percent, though the delivery of new rentals may more significantly offset demand growth in the quarters ahead. The potential influx of college graduates, many of whom will occupy rentals and remain there for an extended period as they pay off student loans, has attracted developers. While the pipeline of planned projects in the suburbs is also expanding, the greatest potential effect of supply growth will register in the city, where completions will rise this year and additional projects wait to proceed. Steady hiring in the first quarter has sparked demand. Across the metro area, 8,000 jobs were added during the period, raising the number of positions created in the past 6 months to 14,400. The private sector continues to set the pace, …
Consumers are loosening their wallets in St. Louis, and the thaw in spending has given the local retail market a much-needed shot of adrenaline. The discount retailer is still king, but new concepts and developments are gaining ground. With positive absorption of space on the rise, investment sales are increasing. St. Louis is poised to see a major development in the central trade area at the former Hadley Township site. After several failed attempts at development in the past 10 years, Hadley seems destined for redevelopment at last. The 40-acre site is located on I-64 in the central suburb of Richmond Heights and will consist of an assemblage of 150-plus commercial and residential parcels. In the southern half of the development, Menards was selected by the city over Costco and will open one of its first St. Louis locations in early 2014. The site plan includes a 240,000-square-foot store with additional out parcels for retail and restaurant users. In the northern half, Pace Properties has received approval to develop a two-story, 400,000-square-foot, big-box store for an as yet unnamed retailer. This development will further enhance the desirability of the Richmond Heights/Brentwood area as a retail destination and will boost asking …
The Kansas City industrial market is healthier than most, largely because the market was not overbuilt during the last expansion phase. So, the overall vacancy never topped 10 percent. Currently, we are seeing major shortages in spaces ranging from 100,000 square feet and above, with only a 2.5 percent to 3 percent vacancy rate in that segment. That’s particularly true among buildings with 24-foot clear height ceilings. Because vacancies are on a steady decline in building sizes of about 75,000 square feet — specifically in quality, high-cube warehouse space — the need for speculative construction is overdue. Few developers have had the fortitude or the financing to undertake speculative development in recent years. A Sun Life Financial-owned facility, which spans 600,000 square feet in Olathe, Kansas, is now fully leased to Bushnell and FedEx. The facility was built in 2008. Kessinger/Hunter & Co. is developing a second building for Sun Life at I-35 Logistics Park. The state-of-the-art, 800,000-square-foot facility will be the largest building ever built on a speculative basis in the Kansas City area. On the northern side of the market, Horizons Business Park in Riverside, Missouri, has broken ground on a 155,000-square-foot distribution center and is contemplating additional …
There is almost a perfect storm gathering in the multifamily markets in Kansas City. Rents are rising, vacancy is decreasing, cap rates have compressed and valuations are up for sellers. Debt capital is cheap for buyers, and there’s plenty of pent-up demand for multifamily investment. Meanwhile, developers are coming out of hiding, and some great new projects are either under construction or on the drawing board. The fundamentals of the Kansas City multifamily market continued to show strength through the first quarter of 2012. At the end of 2011, the average rent was $727 and is forecast by credible sources to grow in excess of 4 percent in 2012. Kansas City’s vacancy has decreased by 50 basis points. Overall vacancy in the marketplace stood at 5.6 percent at the end of the first quarter, according to New York-based real estate research firm Reis. Net absorption totaled about 2,800 units in 2011, the highest annual absorption since 2000, according to Reis. Net absorption in the Kansas City apartment market was 592 units in the first quarter of 2012. At the end of the 2011, Class A apartments were selling at or above $100,000 per unit at cap rates consistently below 6 …
With the local economy recovering from the Great Recession, the commercial real estate industry in Cincinnati is heating up. Strong office leasing activity in recent quarters has driven down the vacancy rate. From a high of 21 percent in the first quarter of 2011, total vacancy has steadily dropped to its current rate of 19 percent, the result of approximately 700,000 square feet of positive absorption, according to Jones Lang LaSalle. The real estate services firm tracks Class A and B office properties greater than 20,000 square feet, excluding owner-occupied medical and government buildings. The growth of Cincinnati businesses has sparked increased demand for office space, leading to approximately 1 million square feet of product currently under construction or planned for the next year. Meanwhile, the lending climate has improved greatly since the depths of the recession. Cincinnati has welcomed corporate relocations and expansions during the past year. Following several years of short-term lease renewals and tenants giving space back, this is welcome news that is already improving market fundamentals. Driving the increase in office demand is job growth in the healthcare industry as well as the professional and business services sector. The three largest leases within the last year …
Unlike many other major U.S. hotel markets in 2008 and 2009, Kansas City did not experience devastating decreases in occupancy and average daily rate (ADR). The severe drop in revenue that stung markets such as Detroit, Cincinnati, Chicago, Phoenix, San Diego as well as Dallas did not occur in Kansas City. In some instances, these other markets experienced decreases in revenue per available room (RevPAR) of 30 to 35 percent, while Kansas City experienced a decline of 15 to18 percent. The Kansas City hotel market recorded increases in ADR, occupancy and RevPAR throughout 2011 and the trailing 12-month period ending in March 2012. During this period, occupancy increased 3.4 percent to 57.3 percent, average daily rate increased 2.3 percent to $82.61 and RevPAR increased 5.7 percent to $47.37. According to Smith Travel Research, the data was based on 285 reporting hotels with a total of 31,927 rooms. The biggest improvement in real estate fundamentals occurred in the Overland Park-Lenexa market and the Country Club Plaza area. Both areas posted overall RevPAR growth of an impressive 10 percent, while the Kansas City North Airport market experienced growth of only 3.8 percent. Occupancies in the downtown hotel market are projected to remain …
After posting slightly positive net absorption for three consecutive quarters, the industrial market in Cincinnati bucked that trend in the second quarter by recording negative absorption of 836,000 square feet, according to Xceligent. This setback can partially be attributed to a falloff in demand, but was largely the result of several large owner-occupants moving out of their buildings. As a result, the overall vacancy rate climbed 20 basis points in the second quarter to 10.2 percent. Still, that’s below the peak vacancy rate of 10.7 percent reached in the second quarter of 2011. Significant new vacancies in the second quarter included Avon (750,000 square feet), Hamilton Fixture (330,000 square feet), and Sonoco Corrflex (319,000 square feet). This wiped out the positive absorption recorded in the first quarter. Through the first half of 2012, the market has posted 395,000 square feet of negative net absorption. Underlying Trends Similar to what we experienced in 2011, tenants are taking advantage of discounted rental rates in Class A product. There has been marginal activity involving Class B or C product. The good news is that there are growth opportunities with some space requirements of more than 100,000 square feet. That demand is driven by …