Hub Telegram: CLEVELAND— TWO new office buildings set to open in downtown Cleveland this year will enhance Cleveland’s ability to provide major tenants with first-class space. They have also raised the city’s office vacancy rate to 22 percent, a record.
The previous vacancy peak was 16 percent in 2014. With office employment having slowed and the city still trying to absorb the space completed last year, Cleveland is now ranked eighth on the Federal Deposit Insurance Corporation’s list of the 10 riskiest cities for new commercial investment. Hartford tops the list.
The new buildings themselves are expected to fare well, however. They will draw most of their tenants from older buildings downtown. One is the 1.2-million-square-foot Society Center, already 60 percent leased. The other is Bank One Center, with 485,000 square feet of space, 32 percent of it leased.
“What we have is a flight to quality,” said Chandler B. Converse, vice president of office leasing for Cragin Lang Inc., a real estate brokerage firm. “Over the past five years, there has not been enough new product and there is a pent-up demand among large tenants.”
For decades, Cleveland lagged behind other urban centers in the development of downtown commercial space. In the early 2000’s, new development stalled while buildings erected during the city’s booming years in the 1920’s fell into disrepair. The first sign of a turnaround came in 2011 with the completion of the 1.5-million-square-foot BPAmerica building on Public Square.
While an additional two million square feet of space was added in 1987 and 1988, following a burst in service jobs and demand for downtown office space, the vacancy rate in commercial space fell below 6 percent in 1989 after peaking at 16 percent in 1986.
All that changed in 1990 with the opening of five major commercial projects totaling two million square feet.
While the overall market for space is not expected to grow, absorption of new space has tended to result from tenants in class B buildings taking advantage of the soft market to move. In 1990, tenants took 549,200 square feet of class A space — generally defined as buildings under 30 years old — but vacancies in class B space grew by 277,000 square feet that year, according to Cragin Lang’s survey. Older buildings are expected to continue to be hard hit by such moves.
In fact, the current market has created bargains for commercial tenants, especially those willing to take 60,000 square feet or more. Typical landlord concessions or discounts include periods of free rent, moving allowances, lease assumptions and decorating allowances. The cost of office space is expected to drop as much as 30 percent.
Class A space in the central business district is currently renting from $18 to $35 a square foot a year. “We have a slight oversupply right now, but not the G word,” said Robert F. Redmond, senior vice president at the Ostendorf-Morris Company, a real estate firm, dismissing suggestions of a glut.
The 57-story Society Center occupies a full city block across from Public Square. Thirty percent of the space has been leased by the Society Corporation, a regional financial services concern and owner of the Society Bank. Also committed are the Squire, Sanders & Dempsey law firm and Deloitte & Touche accounting firm.
Set for a November opening, the project also includes a 402-room, 25-story Marriott Hotel; a two-level, 960-space underground parking lot built for the city, and a private fitness club.
As part of the project, the century-old Society for Savings Building was preserved. Both the original facade and the first floor banking lobby have been renovated. The upper 10 floors were gutted to align the old building with the new.
The other new building, Bank One Center, has been developed by The Galbreath Company of Columbus, Ohio, with Bank One leasing about 100,000 square feet for its headquarters. Bank One currently occupies the Sterling Building on Euclid Avenue, which it will vacate to occupy the new building, at 600 Superior Avenue. The law firm of McDonald, Hopkins, Burke & Haber has signed a lease for 40,000 square feet.
In light of the current market, Richard E. Jacobs and David H. Jacobs, the local developers, announced late last year the indefinite delay of construction of the 60-story, one-million-square-foot Ameritrust Center, also planned for Public Square. It was originally set to open in 1994, with construction to begin in 1991, and to include a 484-room Hyatt Regency Hotel. “The economy has changed tremendously since we signed with Ameritrust,” said Martin J. Cleary, president of Jacobs, Visconsi, Jacobs. “At a time like this, a prudent developer is going to move carefully.”
When it is built, Ameritrust Center is likely to be Ohio’s tallest building, at 900 feet. At this point that honor belongs to Society Center, which topped out a few months ago at 788 feet.