What area is your expertise?
• The Greater Cincinnati, Ohio metropolitan area — a seven-county area in southwestern Ohio and northern Kentucky.
What trends do you see presently in office development in your area?
• Speculative new construction and existing Class A buildings have captured the lion’s share of the nearly 1 million square feet of net positive absorption in 2007. In stark contrast, the Class B office market accounted for only 24 percent of this total. This trend is leading to increasing rental rates for Class A product while the Class B rents remain stagnant or are even on the decline.
Who are the active office developers in your area?
• Duke Realty Corp., Scott Street Partners, Al. Neyer, Inc., Neyer Properties, Inc. and Miller-Valentine Group
Please name one or two significant office developments in your area. What impact will these projects have on the market?
• Kenwood Towne Place is a mixed-use development adjacent to the high-end Kenwood Towne Centre regional mall currently under construction in the Kenwood submarket. The retail component will contain a Kroger and the area’s first Crate and Barrel along with a 250,000-square-foot office tower that has signed UBS as its first tenant. Nearby in this same relatively small office submarket, Redstone of Kenwood is a 160,000-square-foot office building under construction and developed by Scott Street Partners. CNG Corp. has signed for two floors or 64,000 square feet.
Where is the majority of development taking place?
• The Interstate 71 corridor between downtown and Kenwood (known as the Midtown submarket) currently has 1 million square feet of new office under construction.
Why is this area doing well?
• Proximity to downtown and the international airport located across the river in northern Kentucky, easy access, free parking and location near high demographic residential areas.
What area do you expect to be the next big development market?
• The Midtown urban infill sites, while few, will continue to attract the attention of developers.
Why?
• For all the same reasons stated above — allowing new office buildings in this area to achieve some of the highest net rents in the market.
What areas are doing well in terms of office leasing?
• The Midtown submarket as mentioned before along with Blue Ash and the I-71 corridor north of I-275. The Central Business District has also posted some good absorption numbers for the year as well as Northern Kentucky, which has recently suffered with near 30 percent vacancy rates.
Which areas are struggling with office leasing?
• The northwestern submarket known as Tri-County, located at the I-75/I-275 interchange, has experienced difficulties in recent years as the focus for new office activity has moved northward along I-75 to the Union Centre Boulevard area. Duke Realty is completing the sixth office building at Centre Pointe Office Park, which has experienced a high level of leasing activity over the past 7 years.
Please give a measure of office vacancy rates.
• As of the end of third quarter 2007 the overall vacancy rate for the greater Cincinnati office market was 18.8 percent.
Please give a measure of available sublease space.
• There was a total of 498,817 square feet of sublease space available in the greater Cincinnati area as of the end of third quarter, approximately 1.4 percent of the total office market.
What impact do current interest rates have on the office market?
• Interest rates will have only minimal impact on the office market as we forecast cap rates to increase by only 25 to 50 basis points.
What predictions do you have for interest rates and their effect on the office market in the next year?
• Although interest rates won’t be a major factor, tighter underwriting standards will make the availability of financing more difficult for highly leveraged and value add buyers. More emphasis will be placed on the financial strength of the property’s tenants and the equity position of the buyer. This will open up the fast lane for low leverage, quick performing investors to move to the front of the line for deals. Sellers will place greater emphasis on the surety of closure.
What is the status of job growth/(un)employment rates and what bearing will it have on the office market?
• Cincinnati continues to see declining unemployment rates which currently stand at 4.8 percent, just slightly higher than the national average of 4.4 percent.
Is there any type of office tenant absorbing a majority of space?
The primary growth industries will be health care, technology and financial services. Within the past 12 months, Cincinnati was selected by both Citigroup and Tata Consultancy Services for major IT support facilities. These two companies alone will bring nearly 2,000 new jobs in the technology sector.
What industries do you expect to expand in the next year to absorb a great deal of office space?
• The three major growth industries mentioned above will continue to drive demand for office space in the market.
What areas will be affected?
• The I-71 corridor from downtown to the northeastern suburbs will continue to see the most demand for office space. Pockets of health care related development are popping up in the Midtown area as well as the far northern suburban areas experiencing the highest level of population growth. Financial services will trend towards the more centralized submarkets of Midtown, Kenwood and Blue Ash.
— Submitted by Loren DeFilippo, research services manager with the Cincinnati, Ohio office of Grubb & Ellis/West Shell Commercial.