KNOWLEDGE REPORT Office Research & Forecast Report 2017 Colliers International Greater Cincinnati Market Activity Slows, But Outlook Remains Positive > ABSORPTION The Cincinnati office market posted positive net absorption of 141,272 square feet during the third quarter, bringing the year-to-date total to 210,311 square feet. However, the quarter s gain was primarily due to the delivery of 363,000 square feet of new supply, most of which was occupied upon completion. Without this activity, the market experienced a loss in occupancy spread across the Blue Ash, I-71 North, Northern Kentucky and West submarkets. Occupancy gains were recorded in the Midtown, Kenwood, Tri-County and Northern Kentucky Riverfront submarkets. Midtown and Kenwood continue to be a draw for occupiers seeking Class A space in a central location with numerous amenities. > VACANCY Although absorption was positive, due to the addition of new inventory, the overall market vacancy rate increased by 30 basis points to 14.4 percent during the quarter. On a year-over-year basis, vacancy has increased by 10 basis points, but is still well below its peak in 2010 of 21.7 percent. Class A vacancy ranges from a low of 3.2 percent in the popular Midtown submarket to nearly 40 percent in the CBD Periphery, although Tri Health s occupancy of 131,000 square feet later this year will decrease that total. The Central Business District has recorded a 120 basis point drop in overall vacancy over the past two years to 12.6 percent, although activity has moderated recently. Market Indicators Relative to prior period 2017 2017* VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE** * Projected, relative to prior period ** Class A rents MARKET STATS AT A GLANCE > LEASING VOLUME Averaging approximately 2.6 million square feet over the past three years, leasing volume, at the current pace, will finish the year nearly 30 percent below the average. However, the number of completed transactions remain consistent with the three year average. Small and mid-sized tenants comprise the majority of the activity and the average transaction size is currently 4,675 square feet, a decrease of 22.4 percent from last year. The Central Business District in particular has experienced a dramatic slowing in demand. To date, leases totaling just under 200,000 square feet have been inked whereas roughly 700,000 square feet of leasing activity were recorded during each of the past three years in the downtown market. > RENTAL RATES The overall market weighted asking rental rate is $18.01 per square foot; a one percent decrease from last quarter, but unchanged year-overyear. Class A rental rates average $22.37 per square foot, a decline of $0.11 over the past 12 months. While rent growth has moderated or decreased slightly during 2017, most submarkets have recorded increases over the past two years ranging from 1.9 percent downtown to 5.8 percent in I-75 North/West Chester; 6.4 percent in the I-71 North submarket and 12.7 percent in Blue Ash. With no speculative construction pressuring the supply side, asking rates will likely remain stable over the next 12 months until demand increases. 14.4% VACANCY RATE +141.3 NET ABSORPTION (Thousand SF) $18.01 MARKET ASKING RENT (Psf/Yr, FSG) 485.1 UNDER CONSTRUCTION (Thousand SF)
Summary & Outlook The Cincinnati office market has made a dramatic recovery since the end of the Great Recession, recording an occupancy gain of nearly 4.4 million square feet and a decrease in overall vacancy of 7.3 percentage points. This year s slowdown is surprising in light of the accelerated growth in employment in the office-using sectors. Nearly 10,000 jobs have been created in these sectors over the past 12 months, a yearover-year increase of 4.1 percent. Although, the market has cooled off since the last round of large transactions but, some larger users have recently begun site searches. This suggests the potential for an increased level of demand in the near future. Some of these new requirements, reportedly, have been attracted by the Amazon Prime Air hub to be constructed at the Cincinnati/Northern Kentucky International Airport. Speculative construction remains non-existent and most of the planned projects are waiting for a significant pre-lease commitment. As market activity increases, we expect additional gains in occupancy and vacancy rates should begin their downward trajectory once again. Summary Statistics 2017 Cincinnati Office Market Market CBD Suburban Vacancy Rate 14.4% 12.6% 15.1% Change From 2017 (basis points) Absorption New Construction Under Construction Asking Rents Per Square Foot Per Year FSG Market $18.01 Market Class A $22.37 Downtown Class A $23.39 Suburban Class A $21.94 +30 0 +40 +141.3-0.8 +142.0 363.0 0 363.0 485.1 202.7 282.4 Notable Office Sales 2017 PROPERTY NAME/ADDRESS SALE DATE SALE PRICE BLDG SF BUYER SELLER CLASS SUBMARKET Anthem - 3075 Vandecar Way Jul-17 $18,191,850 80,644 System Property Development Company Inc Al Neyer, Inc. A Midtown Governors Hill Bldg 3 Jun-17 $10,260,000 69,826 Carter Validus Mission Critical REIT II Inc General Electric Company B I-71 Corridor North 9655 Reading Rd Aug-17 $5,907,000 39,385 Rich Uncles REIT Viox Services B Tri County 87 E US Highway 22 Jul-17 $3,000,000 26,232 Little Miami Local School District Board of Education C III Capital Partners B I-71 Corridor North 59 Cavalier Blvd Jul-17 $1,650,000 15,000 CFW Partners LLC 59 Cavalier Drive Florence KY B Northern Kentucky 1650 Central Pkwy Jun-17 $1,600,000 31,702 Model Group Meisel Investments Inc B CBD Periphery 6355 E Kemper Rd Aug-17 $1,310,000 17,590 Cincinnati United Contractors Malk Venture, Ltd Medical Blue Ash/Montgomery 310 Terrace Ave Aug-17 $1,200,000 9,840 Gaslight Property Realty LLC DJF Partners LLC Medical Midtown Conrey Business Center Sep-17 $1,117,000 18,000 Safe Transportation Services Inc Lehigh Landmarket B Blue Ash 5680 Bridgetown Rd Sep-17 $1,100,000 8,856 Hendy Asset Management Co. Mabro LLC Medical West Notable Office Leases 2017 PROPERTY NAME/ADDRESS LEASE DATE LEASE SF ASKING RATE LEASE TYPE TENANT NAME BUILDING CLASS SUBMARKET Omnicare Center Sep-17 38,803 $12.50 NNN Squire Patton Boggs ** A CBD One Gateway Place Jul-17 20,691 $11.50 NNN LifeCenter * A CBD Peripheral One Riverfront Place Sep-17 17,400 $15.75 NNN Undisclosed Tenant A NKY Riverfront One East Fourth Street Sep-17 14,529 $21.50 NNN Main Source Bank B CBD Pictoria Tower I Jul-17 13,215 $11.95 NNN Azelis America/ GMZ A Tri County Kenwood Park Place Aug-17 10,870 $17.00 NNN Mercy Health A Kenwood Kenwood Crossing I Aug-17 10,721 $16.00 NNN Mercy Health A Kenwood Mt Adams Centre Sep-17 10,414 $15.00 NNN Undisclosed Tenant B CBD Peripheral 7660 Turfway Rd Jul-17 9,519 $16.00 NNN LeanCor Supply Chain Group A Northern Kentucky Westlake Center Aug-17 9,217 $13.50 NNN Callibrity Solutions A Blue Ash *Renewal or Expansion **Sublease 2 Cincinnati Research & Forecast Report 2017 Office Market Outlook Colliers International
Office Vacancy/Absorption Office Employment Office Employment vs Vacancy 1,800,000 25.0% 260.0 23.0% 1,600,000 250.0 21.0% Net Absorption 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - (200,000) YTD 20.0% 15.0% 10.0% 5.0% 0.0% Vacancy Rate (%) Employment (1,000 SF) 240.0 230.0 220.0 210.0 200.0 190.0 180.0 170.0 160.0 19.0% 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% Vacancy Rate (%) Net Absorption Vacancy Rate Office Employment Vacancy Rate Modest leasing activity and limited construction has resulted in no change in overall vacancy to date during 2017. Job growth in the office-using sectors has accelerated over the past 12 months recording a 4.1% increase over the previous year. Office Average Asking Rates (FSG) Leasing Activity $23.00 1,200,000 140 $ PSF (Full Service Gross) $22.00 $21.00 $20.00 $19.00 $18.00 $17.00 SF Leased 1,000,000 800,000 600,000 400,000 200,000 120 100 80 60 40 20 # of Leases $16.00 YTD 0 2012 2012 2017 2017 2017 0 Class A Rental Rate Overall Rental Rate Total Leased SF # of Leases The overall market weighted asking rental rate declined by 1.0% during the quarter, but remains unchanged year-over-year. Sources: Colliers Research, Xceligent, CoStar, Bureau of Labor Statistics The annual average number of transactions has remained consistent although total leasing volume is down reflecting more activity by small to mid-sized occupiers. Global Workplace Trends 5 Shifts Companies Must Make in the Next 5 Years In our work, Colliers International s global workplace solutions professionals find that the most successful companies look at workplace strategy as a true business opportunity rather than just a design challenge. By bringing together our insights and experiences from every corner of the world, we have identified five major shifts we believe businesses need to make in the workplace over the next five years: Make employee experience a core part of business strategy Build the Internet of Workplace Create a workplace that makes people healthier Ingrain the co-working mentality in real estate strategy Enable the agile organization DOWNLOAD THE WHITE PAPER HERE Amazon Headquarters Two Amazon recently requested proposals from North American cities for sites where the e-commerce giant will build a second headquarters. An analysis by Anderson Economic Group examined how 32 metro areas meet the RFP requirements and the Cincinnati region ranked 13th on the list. With REDI Cincinnati taking the lead, the region has come together to present a unified approach to bidding for the project. Notably, one idea is to submit multiple sites on both sides of the river. This is not that crazy of an idea. The Cincinnati central riverfront offers a wide array of benefits and amenities. Each site could accommodate one phase of the overall project and they all could be connected by a transit option making a loop through the development. No matter what Amazon s final choice is, this exercise is showcasing the region at its best, bringing together numerous economic development and political entities in a coordinated and unified effort. 3 Cincinnati Research & Forecast Report 2017 Office Market Outlook Colliers International
Cincinnati 2017 Office Submarket Data MARKET # OF BLDGS INVENTORY AVAILABLE VACANT SUBLEASE VACANCY RATE AVAILABLE (%) QTRLY NET ABSORPTION YTD NET ABSORPTION AVG WTD ASKING RATE (FSG) CBD 118 18,048,763 2,751,686 2,267,606 12.6% 272,939-762 -29,204 $19.28 A 17 8,137,243 1,348,919 1,071,989 13.2% 139,839-19,262-19,731 $23.39 B 71 8,549,310 1,143,347 1,023,226 12.0% 124,100 18,645-5,966 $15.90 C 30 1,362,210 259,420 172,391 12.7% 9,000-145 -3,507 $12.50 CBD PERIPHERY 76 3,645,648 903,914 820,094 22.5% 0 35,495-14,982 $18.37 A 7 1,052,300 465,220 415,517 39.5% 0-21,095-31,361 $21.12 B 44 1,722,463 358,602 324,485 18.8% 0 52,826 9,067 $15.55 C 25 870,885 80,092 80,092 9.2% 0 3,764 7,312 $13.17 BLUE ASH 116 5,655,423 1,378,545 1,151,526 20.4% 252,943-13,318-239,734 $19.13 A 25 2,580,315 719,448 627,188 24.3% 170,732 36,236-146,871 $23.60 B 81 2,888,884 620,885 499,390 17.3% 82,211-49,554-104,653 $15.32 C 10 186,224 38,212 24,948 13.4% 0 0 11,790 $11.96 EAST 87 3,161,845 566,743 530,284 16.8% 17,385-31,650-83,143 $16.36 A 9 822,078 73,043 46,269 5.6% 17,385-33,717-28,624 $24.02 B 46 1,362,122 307,602 297,917 21.9% 0 599-64,806 $18.70 C 32 977,645 186,098 186,098 19.0% 0 1,468 10,287 $9.91 I-71 CORRIDOR NORTH 68 5,240,327 852,527 544,720 10.4% 80,828 11,459 47,603 $18.18 A 21 2,868,620 321,494 231,428 8.1% 70,064-40,163-39,397 $20.41 B 44 1,979,554 273,746 219,496 11.1% 10,764 51,622 87,000 $16.98 C 3 392,153 257,287 93,796 23.9% 0 0 0 $13.50 I-75 CORRIDOR NORTH 60 2,514,048 388,736 346,348 13.8% 3,956-3,890-4,173 $22.27 A 19 1,660,162 294,725 266,598 16.1% 3,956-2,067 7,432 $23.75 B 36 771,142 80,435 66,174 8.6% 0-1,823-11,605 $16.89 C 5 82,744 13,576 13,576 16.4% 0 0 0 $13.95 KENWOOD/MONTGOMERY 50 2,302,112 244,094 204,854 8.9% 6,507 42,616 59,126 $22.21 A 10 1,299,897 79,818 81,777 6.3% 6,507 24,685 62,012 $28.63 B 31 812,801 128,256 113,557 14.0% 0 13,431-2,886 $17.15 C 9 189,414 36,020 9,520 5.0% 0 4,500 0 $14.57 MIDTOWN 97 5,646,934 368,157 335,878 5.9% 10,495 133,681 309,841 $18.52 A 26 2,554,441 154,088 81,489 3.2% 805 151,907 278,794 $25.99 B 47 2,131,733 104,872 146,024 6.9% 9,690-23,118 53,416 $16.30 C 24 960,760 109,197 108,365 11.3% 0 4,892-22,369 $11.53 NORTHERN KY 148 6,043,381 900,947 792,349 13.1% 42,071-88,286-43,211 $17.34 A 40 2,397,671 460,893 414,497 17.3% 11,846-36,844-37,206 $18.55 B 95 3,387,513 412,060 349,858 10.3% 30,225-64,582-30,210 $15.73 C 13 258,197 27,994 27,994 10.8% 0 13,140 24,205 $12.81 NORTHERN KY RIVERFRONT 40 2,632,888 514,345 483,946 18.4% 0 55,545 146,371 $20.30 A 6 1,760,104 432,968 432,968 24.6% 0 28,601 83,274 $22.14 B 26 634,468 55,371 26,660 4.2% 0 16,944 33,097 $17.27 C 8 238,316 26,006 24,318 10.2% 0 10,000 30,000 $14.66 TRI-COUNTY 141 7,748,654 1,726,424 1,464,128 18.9% 48,279 55,702 135,242 $13.16 A 9 1,078,416 143,459 98,377 9.1% 18,587 39,661 50,559 $18.54 B 104 5,869,177 1,411,091 1,194,397 20.4% 29,692 40,366 77,274 $12.83 C 28 801,061 171,874 171,354 21.4% 0-24,325 7,409 $11.28 WEST 43 1,095,413 282,650 225,800 20.6% 0-55,320-73,425 $14.79 A 4 133,146 0 0 0.0% 0 0 6,500 -- B 30 737,796 215,757 174,592 23.7% 0-55,320-57,731 $14.79 C 9 224,471 66,893 51,208 22.8% 0 0-22,194 -- Grand Total 1,044 63,735,436 10,878,768 9,167,533 14.4% 735,403 141,272 210,311 $18.01 4 Cincinnati Research & Forecast Report 2017 Office Market Outlook Colliers International
396 offices in 60 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 192 EMEA: 112 OFFICE BROKERAGE SERVICES contact Fred A. Macke, Jr. Richard P. Meder John P. Schenk CCIM, SIOR Christopher D. Vollmer SIOR Sloane S. Nichols Brokerage Vice President Chris D. Vollmer, Jr. Brokerage Vice President Matthew H. Smyth Brokerage Senior Associate Shenan P. Murphy, CCIM CEO/Principal Cincinnati & Dayton FOR MORE INFORMATION Loren M. DeFilippo, CCIM Director of Research Ohio loren.defilippo@colliers.com Colliers International Greater Cincinnati 425 Walnut Street, Suite 1200 Cincinnati, OH 45202 +1 513 721 4200 colliers.com/ohio Andrew J. Wall Research Analyst Cincinnati andrew.wall@colliers.com Keara Fogarty Marketing & PR Coordinator keara.fogarty@colliers.com +1 513 721 4200 Copyright 2017 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. accelerating success.