Investment Activity in Cincinnati Commercial Real Estate Market Spikes

Erick Koehler, DTZ

Erick Koehler, DTZ

Throughout the economic recovery, real estate has been investors’ preferred asset class in the Cincinnati region and across the United States. Although the Federal Reserve is likely to raise short-term interest rates in June or September, demand for commercial real estate is expected to remain strong as long as the recovering economy continues to create new demand for commercial space.

According to Real Capital Analytics, 2014 finally saw total U.S. sales volume and property prices (at the aggregate level) reach pre-recession levels. In fact, Real Capital Analytics reports that excluding portfolio sales, activity was higher in 2014 than in 2007.

Investment Sales Surge
Metro Cincinnati’s property and portfolio sales in 2014 totaled more than $2.3 billion across all major real estate sectors, a 53 percent increase over 2013. It was, by far, the strongest year for investment activity in recent memory, with significant increases across all property types.

For the second straight year, retail sales transactions led the way locally among all property types. Retail sales volume in 2014 exceeded $600 million, $370 million of which occurred in the fourth quarter.

Office property and portfolio sales in Cincinnati totaled nearly $580 million in 2014. This figure was a 162 percent increase over 2013’s volume and more than the combined totals of 2012 and 2013.

One major office transaction during 2014 was the $83 million purchase by ARCP Acquisitions LLC (a subsidiary of New-York based American Realty Capital) of the Gateway Center buildings on Scott Boulevard in Covington, Ky. The deal was one of the largest real estate transactions in Northern Kentucky’s history.

The industrial market finished the year with more than $575 million in investment sales volume locally. This was a 61 percent increase over 2013. Among deal highlights, Plymouth Industrial REIT purchased a three-property portfolio (576,241 square feet) from Trident Capital Group for a combined $18.9 million.

Meanwhile, Cincinnati United Contractors purchased the recently built 190,000-square-foot Forest Pharmaceuticals building in Blue Ash for $14.4 million.

As predicted, the final numbers for 2014 show that new multifamily development finally caught up with renter demand and outpaced absorption for the first time since 2009. Total multifamily sales volume for the year topped $389 million in metro Cincinnati. This was nearly $98 million more than in 2013.

Class A Assets in Demand
According to Real Estate Alert, a newsletter that tracks commercial real estate investment activity, sales of institutional-quality assets over $25 million achieved similar records during 2014. Sales of large, institutional-quality retail, industrial and multifamily properties all approached or exceeded their prior peak established in 2007.

Nationally, the multifamily sector experienced the most dramatic rise with a 34 percent increase from 2013 to 2014. The year ended with $66.4 billion in institutional-quality property sales over $25 million, which exceeded the previous record of $52 billion by 28 percent. Cincinnati’s largest multifamily transaction in 2014 was the sale of the Williamsburg of Cincinnati for $25.5 million.

Institutional-quality sales $25 million and above in the retail sector totaled $28.1 billion nationally in 2014, a 22 percent increase over 2013 activity and $800 million above the previous record established in 2007.

The Cincinnati retail market contributed six transactions totaling $242.5 million to this institutional class, with the largest being the sale of Bridgewater Falls from Phillips Edison & Co. to Ramco-Gershenson Properties Trust, a REIT, for $85.4 million.

Sales of institutional-quality industrial properties totaled $14 billion in 2014, up 36.1 percent over 2013 and second only to the 2007 peak of $17 billion.

Three industrial transactions in Cincinnati each closed above the $25 million threshold with a combined transaction value of $109.2 million. DCT was the seller in the two largest transactions. J.P. Morgan acquired one of DCT’s portfolios for $42.6 million, and Opus acquired DCT’s Port Union Commerce Park Portfolio for $38.6 million. The third major transaction was a portfolio sale by Prologis to TPG Real Estate for $28 million.

Office Rebound Imminent
National sales for large, institutional-quality office properties have lagged slightly due to the lack of strong absorption evident in other property sectors. Now that a significant amount of shadow vacancy has been filled with tenants, vacancy rates for most CBD assets have begun to fall.

The volume of office sales is expected to increase throughout 2015 as occupancy levels and average rents both begin to rise. Last summer, DTZ represented Duke Realty in Cincinnati’s largest transaction of the year with the sale of six Class A suburban office properties to Hines Interests LP for $150.5 million.

In addition to this portfolio transaction, other major office transactions in 2014 included the sale of Gateway Center for $82.6 million, Executive Centre I-II-III for $38.9 million and the sale of Central Parke for $34 million.

Banner Year Ahead
Investment activity is likely to be robust in 2015 as leasing demand continues to grow across all property types. Meanwhile, interest rates are expected to remain low throughout most of the year.

CoStar’s value-weighted price index rose by 11 percent in 2014, and is now 5.7 percent above the previous record from 2007. Based on the continued strong macroeconomic fundamentals, expect this trend to continue unabated throughout 2015.

— By Erick Koehler, Vice President, Capital Markets, DTZ. This article originally appeared in the April 2015 issue of Heartland Real Estate Business magazine.

Content Partners
‣ Arbor Realty Trust
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Northmarq
‣ Walker & Dunlop

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