Download LEASE RATES NET ABSORPTION CONSTRUCTION VACANCY

G REATER C INCINNATI Q316 | O FFICE M ARKET R EPORT
The greater Cincinnati office market posted over 620,000 square feet of positive net absorption in the third quarter; with over
490,000 square feet occurring in Class A office product alone. Although the Class A office market has been showing steady
growth in absorption every quarter, with a year-over-year change from 15,000 square feet in third quarter 2015 to the current
490,000, this recent surge of activity is due, in large part, to the 338,000 square-foot delivery of the new GE building at The Banks.
Vacancy rates for the greater Cincinnati office market continue to decline, ending the third quarter at 17%, down nearly 3% from
this same time last year. Average lease rates in the Cincinnati office market continue to climb, ending the quarter just shy of
$19.00/SF Full Service Gross*, a 3.4% year-over-year increase from the $18.14 FSG reported in the third quarter of 2015.
Third quarter also brought a strong and sustained appetite for higher-yielding investment opportunities outside primary markets.
The pricing gap between primary and secondary office markets remains at an all-time high. The average cap rate for primary
markets is 4.1%, while the average cap rate for secondary markets is 5.2%. Cap rates continue to compress, but at a moderate
pace. More than two-thirds of the 32 largest office markets are seeing year-over-year cap rate compression.
Job growth in the Cincinnati MSA has been steady since 2011, and unemployment rates have consistently been lower than those
recorded for Ohio overall. Moreover, the Cincinnati MSA exhibits both a higher GDP growth rate, and a higher GDP per capita
than Ohio. These trends demonstrate the strength and resilience of the commercial real estate market, and serve as positive
economic indicators of recovery.
Source: 1. Xceligent® 2. 2016 Reis Inc.; 3. Integra Realty Resources
*Average Weighted Asking Rates $18.75/SF FSG
O FFICE M ARKET
VACANCY RATES
NET ABSORPTION
AT - A -G LANCE
CONSTRUCTION
LEASE RATES
SVN |RICORE I N VE S T M E N T M A N A G E M E N T , I N C . | 11500 N O RT H L A K E D R . | S U IT E 100 | C IN CIN N A T I , OH 45249 | 513 -272-680 0 M A IN
US E CONOMY
AT - A -G LANCE
| O FFICE S ECTOR S ET
TO
O VER P ERFORM
As the U.S. economy maintains steady, yet relatively tepid growth, the office sector appears to be one of the fastest growing, on a
relative basis. On the national level, office-using employment has been growing, on average, over 2.4% per year, compared to
just 1.7% for all non-farm employment. Within the office sector, Professional & Business Services, and Financial Activities have
been the fastest growing sectors growing at an average of 2.8% and 2.0% respectively (versus 0.7%).
Overall, Cincinnati is experiencing similar trends, with the local year-over-year growth in all non-farm employment at 1.6%.
Financial Activities has been the fastest growing local sector at 4.9%, Information Services has outperformed the national rate at
1.5% growth, and Professional & Business Services lags at a negative -0.6% rate.
The continued growth and performance of the office sectors should result in continued positive net absorption for greater
Cincinnati, resulting in continual improvement in rental and occupancy rates. Further, the differential performance of Class A
properties versus Class B & C could grow wider as older space is more likely to suffer from functional obsolescence. The net
result is that landlords owning desirable space should see improving net operating incomes and values for the near term and
beyond. It’s important
to note
that many firmsRleasing
office
space today
have higher
parking) and employee density
O HIO
U NEMPLOYMENT
ATES (C
INCINNATI
, C OLUMBUS
, D AYTON
requirements; thus, strong job growth in today’s market doesn’t always equally equate to growth in the leasing market.
Overall, office fundamentals are strong, perhaps the best of any core commercial sector. Investors should experience positive
results, at least with respect to market fundamentals, near and long term. Pricing risks lie in increasingly certain interest rates
moves and global macroeconomic uncertainty. In short, cap rates are more likely to move up than down given today’s low rates
and historical trends. Shocks to the overall system could easily disrupt corporate profits which have been relatively flat and even
down in 2016; which, in turn, could reduce hiring and subsequent demand for office space. Still, the risk of recession appears
relatively low in the near term and many of these risks are not forecast to come to fruition.
Source: Joshua A. Harris, Ph. D., CRE, CAIA | Managing Partner | Lakemont Group
Commercial real estate investors, including those with interests in the Cincinnati market,
are not likely to experience any immediate affect from a rate rise, as fundamentals remain
relatively solid. - Joshua Harris, Managing Partner at Lakemont Group
C INCINNATI MSA | T OTAL E MPLOYMENT
1.09
Total Employed (Millions)
1.07
1.05
1.03
1.01
0.99
0.97
0.95
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
C INCINNATI MSA E MPLOYMENT | Y EAR -O VER -Y EAR G ROWTH
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
'07
'08
'09
'10
'11
'12
'13
'14
SVN |RICORE I N VE S T M E N T M A N A G E M E N T , I N C . | 11500 N O RT H L A K E D R . | S U IT E 100 | C IN CIN N A T I , OH 45249 | 513 -272-680 0 M A IN
'15
C INCINNATI O FFICE S UBMARKET O VERVIEW
SUBMARKET/CLASS # OF BUILDINGS TOTAL SF
CBD
Class A
Class B
Class C
CBD Peripheral
Class A
Class B
Class C
Midtown
Class A
Class B
Class C
Kenwood
Class A
Class B
Blue Ash/Montgomery
Class A
Class B
Class C
Tri County
Class A
Class B
Class C
West Chester
Class A
Class B
Fields Ertel/Mason
Class A
Class B
VACANT SF VACANCY RATE QTRLY ABSORPTION (SF)
71
13,219,845 2,210,454
16.7%
332,720
14
6,905,746
994,319
14.4%
358,607
37
5,361,120
1,027,011
19.2%
-18,436
20
952,979
189,124
19.8%
-7,451
27
2,104,828
537,529
25.5%
9,460
5
789,967
316,567
40.1%
7,135
12
757,194
176,224
23.3%
3,171
10
557,667
44,738
8.0%
-846
39
3,021,950
268,743
8.9%
57,477
12
1,404,545
155,450
11.1%
386
16
1,045,934
45,608
4.4%
57,091
11
571,471
67,685
11.8%
21
1,451,516
131,973
9.1%
12,168
6
996,823
93,694
9.4%
5,381
15
454,693
38,279
8.4%
6,787
80
5,035,457
519,723
10.3%
26,908
21
2,546,643
99,379
3.9%
4,355
56
2,415,011
377,603
15.6%
22,553
3
73,803
42,741
57.9%
S
UBMARKET
V
ACANCY
R
ATES
(C
LASS
A,
B
&
C):
46
3,560,077
862,818
24.2%
-1,035
7
1,001,196
126,758
12.7%
3,199
32
2,175,710
648,399
29.8%
-4,234
7
383,171
87,661
22.9%
21
1,616,789
287,454
17.8%
21,417
12
1,404,626
248,743
17.7%
16,573
9
212,163
38,711
18.2%
4,844
41
3,091,574
664,092
21.5%
89,446
12
1,630,862
178,552
10.9%
79,419
26
1,069,291
214,677
20.1%
10,027
YTD ABSORPTION (SF)
487,271
409,933
33,312
44,026
-54,457
-86,952
7,088
25,407
459,668
408,584
48,304
2,780
101,777
96,943
4,834
59,515
19,277
35,288
4,950
112,651
13,543
108,355
-9,247
-57,732
-56,216
-1,516
149,315
133,281
16,127
Class A: Premier office users. Above market rents. High quality finishes. State-of-the-art systems. Exceptional accessibility. Strong market presence.
Class B: Wide range of office users. Average rents. Standard finishes. Does not compete with class A product.
Class C: Users requiring functional office space at market or below market rents.
SVN |RICORE I N VE S T M E N T M A N A G E M E N T , I N C . | 11500 N O RT H L A K E D R . | S U IT E 100 | C IN CIN N A T I , OH 45249 | 513 -272-680 0 M A IN
VACANCY R ATE
BY
S UBMARKET
31.3%
25.5%
16.7%
16.7%
8.9%
21.5%
9.1%
10.3%
AVERAGE W EIGHTED A SKING R ATES
BY
MIDTOWN
NKY RIVERFRONT
NORTHERN KENTUCKY
H ISTORICAL N ET A BSORPTION (SF)
17.8% 13.6% 17.3%
S UBMARKET (FSG)
CBD
CBD PERIPHERAL
24.2%
BY
$19.81
$18.11
P RODUCT T YPE$20.78
$20.96
$19.61
$26.86
KENWOOD
$18.16
$17.24
BLUE ASH/MONTGOMERY
FIELDS ERTEL/MASON
TRI COUNTY
$14.26
$22.30
WEST CHESTER
EAST
WEST
$17.06
$17.26
I continue to be amazed at how tenacious our advisors have been in filling the last
remaining vacancies in our leased and managed office product. Our investors could not
be happier with their cash flow. - John Rickert, Executive Managing Director at SVN | RICORE
C ONSTRUCTION A CTIVITY
260,500 SF
BY
S UBMARKET (T OTAL SF)
236,000 SF
BLUE ASH/MONTGOMERY
EAST
MIDTOWN
C HANGES
SUBMARKET
80,000 SF
58,878 SF
42,000 SF
IN
47,000 SF
NORTHERN KENTUCKY
TRI COUNTY
WARREN COUNTY
A BSORPTION | S ELECT T RANSACTIONS
PROPERTY NAME | ADDRESS
SF OCCUPIED/VACATED
TENANT
BUILDING CLASS
CBD
GE Building @ The Banks
338,533
General Electric (GE)
Class A
Fields Ertel/Mason
London Computer Systems
77,624
London Computer Systems
Class A
Central Parke Office Building II
39,400
- Confidential -
Class B
Dolwick Business Center
39,354
St Elizabeth Healthcare
Class B
CBD Peripheral
Flatiron Building
(6,800)
Hollywood Casino
Class B
CBD Peripheral
The Baldwin Offices
(11,865)
Travelers Insurance
Class A
Blue Ash/Montgomery
Redhill Office Park I
(19,000)
Goettsch, Inc.
Class B
Omnicare Center
(29,610)
Omnicare
Class A
Midtown
Northern Kentucky
CBD
SUBMARKET
PROPERTY | ADDRESS
SALE PRICE
SF SOLD
BUYER
SELLER
BUILDING CLASS
CBD
URS Center
$8,000,000
197,302
36 E Seventh LLC
JPMCC 2004 CIB
Class B
CBD
Former Terrace Plaza
$7,000,000
221,695
Cincinnati Terrace Plaza LLC
Prodigy Properties
Class B
Northern Kentucky
601 Centre View Blvd
$4,500,000
28,294
Saint Elizabeth Medical Inc.
NKY Cancer Center
Class A
West Chester
8945 Brookside Ave
$2,350,000
10,280
MWM Properties LLC
Meade Development
Class B
Northern Kentucky
8780 US Highway 42
$2,000,000
18,537
GT Enterprise LLC
Julian Mackenzie III
Class B
Fields Ertel/Mason
Deerfield Urgent Care
$1,400,000
5,734
Mason Exchange LLC
996 Escort Drive LLC
Class B
SVN |RICORE I N VE S T M E N T M A N A G E M E N T , I N C . | 11500 N O RT H L A K E D R . | S U IT E 100 | C IN CIN N A T I , OH 45249 | 513 -272-680 0 M A IN