Fourteen cents doesn't sound like much, but one thin dime and four copper Lincolns amount to what might be the most significant number in Cleveland right now.
"It is absolutely huge," says Gar Heintzelman, a research analyst for the global commercial real estate brokerage firm Newmark Grubb Knight Frank (NGKF
). The figure represents the growth of area office rental rates over the last year, which now average $17.52 per square foot.
"Cleveland hasn't seen a lot of rental growth," he adds, "because there's been so much product."
The "product" Heintzelman's referring to is office space, which heretofore along the north coast was all but taboo to developers, but that's rapidly changing and the swift rise in downtown residential growth is a significant contributing factor. As largely vacant office buildings get snapped up for residential and mixed-use projects, they displace whatever professional tenants they have.
Heintzelman cites the former East Ohio Gas building on East 9th
Street, which is now the Residences at 1717
, as one of the first harbingers of the trend.
"Obviously that tower was largely empty," he says, adding that about 40,000 square feet of the space developed by K&D Management
was actively occupied before the transition. "Those tenants had to go elsewhere. We're seeing more and more of that," he says. "The product is shrinking, but demand for office space has been the same for 10 or 15 years."
Hence, prices are up and murmurs of new construction are bubbling among the development set, particularly in the wake of the success of the 480,000-square-foot Ernst & Young Tower, 950 Main Avenue in the Flats, which is enjoying a 90 percent occupancy rate.
While talk is long on Cleveland's comeback, Heintzelman is all about the numbers. Every quarter, he authors a Cleveland Office Market Report
, which is largely a tool for NGKF brokers and clients. His data comes mainly from data analytic giant CoStar
and a proprietary database populated by NGKF's insider information.
Key takeaways from the current report include:
--The much-ballyhooed sale
of the 1.4 million-square-foot 925 Building (formerly the Huntington Building) at East 9th
Street and Euclid Avenue, which is slated for nearly $300 million in redevelopment. Heintzelman calls the project simply, "giant."
of the former Fifth Third Building at 600 Superior Avenue for more than $50 million. "That's over $100 a square foot," notes Heintzelman. "That's a high number. That's a pre-recession high number."
--The law firm Benesch opting into
the ambitious and yet-to-be realized nuCLEus project in the Gateway District with a lease agreement on 66,500 square feet. "It shows there is a demand for new high class A office space," says Heintzelman. "It kind of proves that the Ernst & Young Building was not an anomaly."
--The Republican National Convention temporarily leasing
40,000 square feet in the Halle Building. "It's not going to be a negative when they leave; it's going to be a net positive while they're here," says Heintzelman, noting that the space is already slated for mixed-use redevelopment. "It's not going to get pushed back onto the market."
Heintzelman, a lifelong Clevelander, speaks from personal experience on this unprecedented turn around and the residential boom. He's in the market for a Downtown apartment.
"I'm on four waiting lists and can't find a single place," he laments. "The vacancy rate for apartments in the city of Cleveland is lower than Chicago, Brooklyn and Los Angeles. That's not a joke. It's harder to get an apartment in Cleveland than those three places." He did, however, manage to put a down payment on a unit in the Guernsey
, 2836 Franklin Boulevard in Ohio City.
As Heintzelman and droves of educated millenials elbow one another out of the way to move Downtown, it's creating a gravity, which is also a boon for office development. "That talent is going to attract more business into the city," he notes, adding that the trend is here to stay.
"I don't see this as a bubble."