Jll cincinnati office outlook q1 2017

JLL Research

Cincinnati | Q1 2017

Office Outlook

An in-depth look at the Cincinnati office market. Analysis includes leasing, sales, construction and employment.

JLL Research

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q1 2017

Insight

The Cincinnati office market saw approximately 275,000 square feet of negative absorption in the first quarter as the market felt the rippling effect of large users relocating and (or) consolidating operations. Notable users such as GE, Coca-Cola, and United Healthcare consolidated operations and vacated large blocks of space in the first quarter. While these vacated spaces have negatively impacted market fundamentals, they’ve opened up large blocks of quality space for Cincinnati’s growing business community.

While larger users vacated their old spaces in the first quarter, several locally based companies bolstered their footprints to start the year. This positive trend in leasing activity was seen across multiple submarkets, both urban and suburban, signaling the underlying strength of the Cincinnati office market. Tenants in the 10,000-25,000-square-foot range drove leasing velocity in the first quarter. Users within this size segment looked to Class A space in the market for their expansions or relocations, while Class B leasing activity lagged behind in the first quarter.

OutlookWhile the trends cited above have led to softened fundamentals to begin the year, the improving economy and growth of industries that require office space will strengthen market fundamentals moving forward. Demand in the market remains high as tenants look to high-end space for expansions, forecasting an increase in rental rates and a decrease in vacancy rates for Class A space moving forward. The bulk of demand in the market remains in the 10,000-25,000 square foot range that has driven leasing year-to-date. Projects in the development pipeline will wait for positive absorption in the market before beginning construction.

Fundamentals Forecast

YTD net absorption -276,145 s.f. ▲Under construction 266,000 s.f. ▶Total vacancy 18.6% ▼Average asking rent (gross) $19.28 p.s.f. ▶Concessions Stable ▶

-500,000

500,000

1,500,000

2013 2014 2015 2016 YTD

2017

Supply and demand (s.f.) Net absorptionDeliveries

Office market stumbles out of the gate to start 2017

21.3% 19.8% 18.1%16.1%

18.6%

2013 2014 2015 2016 2017

Total vacancy

$0.00

$20.00

2013 2014 2015 2016 2017

Average asking rents ($/s.f.) Class AClass B

• Several large users relocated and consolidated operations at the beginning of the year, negatively affecting absorption and vacancy.

• Organic growth of local companies led to expansions of their overall footprint, driving leasing activity in the first quarter.

• Speculative development remains in a holding phase in the aftermath of several large users relocating in the market and softening overall fundamentals.

Cincinnati Office Outlook


Q1 2017

Statistics


ClassInventory

(s.f.)

Total net

absorption

(s.f.)

YTD total net

absorption

(s.f.)

YTD total net

absorption

(% of stock)

Direct

vacancy (%)

Total

vacancy (%)

Average

direct asking

rent ($ p.s.f.)

YTD

completions

(s.f.)

Under

construction

(s.f.)CBD Totals 12,266,866 19,989 19,989 0.2% 15.7% 17.1% $20.02 0 0CBD Peripheral Totals 1,622,161 -20,446 -20,446 -1.3% 30.8% 30.8% $18.52 0 0Midtown Totals 2,462,767 69,253 69,253 2.8% 7.1% 7.3% $21.73 80,000 146,000Urban Totals 16,351,794 68,796 68,796 0.4% 15.9% 16.9% $19.85 80,000 146,000Blue Ash/Montgomery Totals 4,889,567 -218,090 -218,090 -4.5% 13.9% 15.8% $17.40 0 120,000East Totals 1,128,534 0 0 0.0% 17.5% 17.5% $15.97 0 0Fields Ertel/Mason Totals 2,584,744 -23,015 -23,015 -0.9% 12.9% 13.5% $22.60 47,000 0Kenwood Totals 1,411,516 -27,782 -27,782 -2.0% 11.1% 11.9% $24.62 0 0Northern Kentucky Totals 2,659,124 -10,048 -10,048 -0.4% 15.1% 15.6% $22.89 0 0Northern Kentucky Riverfront Totals 1,435,604 1,353 1,353 0.1% 31.2% 31.2% $21.37 0 0Tri-County Totals 3,133,895 27,808 27,808 0.9% 23.2% 24.5% $16.81 0 0West Totals 156,329 0 0 0.0% 9.7% 9.7% $17.31 0 0West Chester Totals 1,561,477 -11,187 -11,187 -0.7% 15.8% 15.8% $22.39 0 0Suburbs Totals 18,960,790 -260,961 -260,961 -1.4% 16.9% 17.8% $19.70 47,000 120,000Cincinnati Totals 35,312,584 -192,165 -192,165 -0.5% 16.4% 17.4% $19.77 127,000 266,000

CBD A 6,905,746 -39,047 -39,047 -0.6% 14.1% 14.9% $22.88 0 0CBD Peripheral A 789,967 -12,474 -12,474 -1.6% 39.9% 39.9% $20.82 0 0Midtown A 1,410,903 79,860 79,860 5.7% 8.7% 8.7% $23.55 80,000 146,000Urban A 9,106,616 28,339 28,339 0.3% 15.5% 16.1% $22.48 80,000 146,000Blue Ash/Montgomery A 2,474,319 -167,914 -167,914 -6.8% 9.9% 13.7% $21.40 0 120,000East A 741,078 0 0 0.0% 0.1% 0.1% $17.93 0 0Fields Ertel/Mason A 1,630,862 -44,024 -44,024 -2.7% 13.4% 13.6% $25.78 47,000 0Kenwood A 996,823 -8,976 -8,976 -0.9% 8.9% 10.0% $27.64 0 0Northern Kentucky A 1,328,310 -600 -600 0.0% 14.0% 15.0% $19.33 0 0Northern Kentucky Riverfront A 1,320,104 3,673 3,673 0.3% 32.8% 32.8% $21.54 0 0Tri-County A 1,001,196 -23,844 -23,844 -2.4% 13.9% 15.0% $19.49 0 0West A 22,472 0 0 0.0% 28.9% 28.9% $18.95 0 0West Chester A 1,329,626 2,310 2,310 0.2% 15.1% 15.1% $23.49 0 0Suburbs A 10,844,790 -239,375 -239,375 -2.2% 14.0% 15.2% $22.27 47,000 120,000Cincinnati A 19,951,406 -211,036 -211,036 -1.1% 14.7% 15.6% $22.37 127,000 266,000

CBD B 5,361,120 59,036 59,036 1.1% 17.7% 19.8% $17.08 0 0CBD Peripheral B 832,194 -7,972 -7,972 -1.0% 22.2% 22.2% $14.59 0 0Midtown B 1,051,864 -10,607 -10,607 -1.0% 4.8% 5.3% $17.26 0 0Urban B 7,245,178 40,457 40,457 0.6% 16.3% 18.0% $16.70 0 0Blue Ash/Montgomery B 2,415,248 -50,176 -50,176 -2.1% 18.0% 18.0% $15.15 0 0East B 387,456 0 0 0.0% 50.9% 50.9% $15.96 0 0Fields Ertel/Mason B 953,882 21,009 21,009 2.2% 12.1% 13.2% $16.56 0 0Kenwood B 414,693 -18,806 -18,806 -4.5% 16.5% 16.5% $20.71 0 0Northern Kentucky B 1,330,814 -9,448 -9,448 -0.7% 16.3% 16.3% $25.95 0 0Northern Kentucky Riverfront B 115,500 -2,320 -2,320 -2.0% 12.6% 12.6% $16.52 0 0Tri-County B 2,132,699 51,652 51,652 2.4% 27.6% 28.9% $16.18 0 0West B 133,857 0 0 0.0% 6.5% 6.5% $16.08 0 0West Chester B 231,851 -13,497 -13,497 -5.8% 19.6% 19.6% $17.56 0 0Suburbs B 8,116,000 -21,586 -21,586 -0.3% 20.8% 21.3% $17.39 0 0Cincinnati B 15,361,178 18,871 18,871 0.1% 18.7% 19.7% $17.11 0 0


Q1 2017

Construction


Address: 105 N Broadway StreetSquare feet: 47,000Tenant: Citizens National BankOwner: Bunnell Hill Development

Delivered: Q1 2017

Estimated completion: Q2 2017 Delivered: Q1 2017

Address: SE of E University Ave and Burnet AveSquare feet: 146,000Tenants: TBDOwner: The City of Cincinnati

Address: 3075 Vandercar WaySquare feet: 80,000Tenant: Anthem Blue Cross and Blue ShieldOwner: Al. Neyer

Address: 4420 Cooper RoadSquare feet: 120,000Tenant: TBDOwner: The City of Blue Ash

Estimated completion: Q2 2017


Q1 2017

Sales


This report analyzes sales over the last 12 months.

$328,529,920

15

$175

-

43.3%

56.7%

6-7% 1 - $0

6.5-7.5% 0.0% 16 $328,529,920

Notable sales transactions year-to-date

RBA (s.f.) $ p.s.f. Sale date

338,533 $316 Oct-16

163,000 $180 Nov-16

175,695 $177 Feb-16

175,695 $154 Mar-16

190,733 $150 Jan-16

221,215 $148 Sep-16

253,353 $101 Mar-16

64,000 $44 Feb-16

81,000 $41 May-16

197,302 $41 Aug-16

Transactions details

Number of partial interest

transactionsCore Class A CBD

Core Class A suburbanNumber of domestic

buyers

Foreign capital

Average partial interest

acquired

Number of foreign buyers

Domestic capital

Average Class A price p.s.f.

Sales activity by building class12 months at a glance

YTD sales volume

Number of transactions

Average Class A cap rate

Sales volume $ by submarket

Urban sales volume as % of total

Suburban sales volume as % of

total

Cap rate range

90 North Real Estate Partners Carter & Associates $107,000,000

Building Buyer Seller Sale price ($)

The Landings II

McAuley Place

Rookwood Tower

The Landings I

GE Building

$32,700,000

Pictoria Tower I Fairbridge Properties New Tower Trust Co. $25,694,920

Top buyers (s.f.)

URS Center Neyer Properties LNR Partners $8,000,000

Hartford Building Neyer Holdings Corp Vulcan Property Management $2,800,000

Tri-State Building The Parkes Companies Tri-State Equities LLC $3,285,000

Park 50 Bldg 26 Cole Capital Lexington Realty Trust

$29,300,000

$31,165,000

$27,135,000

$28,700,000

Top sellers (s.f.)

Ayers Asset Management

VanTrust Real Estate

VanTrust Real Estate

Matrix Holdings Casto

Gramercy Property Trust



27%

24%19%

18%

13%

NewcrestImage Hudson Holdings

VanTrust Real Estate 90 North Real Estate Partners

Fairbridge Properties

26%

24%21%

16%

12%

Gramercy Property Trust CW Capital

Hertz Investment Group Carter & Associates

New Tower Trust Co.

$1,300,000

$3,400,000

$29,800,000

$31,944,920

$32,700,000

$87,000,000

$142,385,000

CBD Peripheral

FieldsErtel/Mason

Midtown

Tri-County

East

Blue Ash

CBD

$281,694,920

$38,950,000

$7,885,000

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

A B C


20%

16%

15%12%

11%

10%

7%

Trade, Transportation & Utilities

Professional & Business Services

Educational & Health Services

Government

Manufacturing

Leisure & Hospitality

Financial Activities

Mining, Logging & Construction

Other Services

Information

Q1 2017

Employment


4.7%U.S. unemployment

1.7%U.S. 12-month job growth

5.0%Cincinnati unemployment

1.9%Cincinnati 12-month job growth

5.0%Ohio unemployment

0.8%Ohio 12-month job growth

0.0%

0.7%

1.4%

2.1%

2.8%

2013 2014 2015 2016 2017

Cincinnati U.S.

-600

-500

200

300

1,400

2,200

2,700

3,000

4,600

6,300

-2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000

Leisure & Hospitality

Government

Information

Other Services

Professional & Business Services

Educational & Health Services

Manufacturing

Mining, Logging & Construction

Financial Activities

Trade, Transportation & Utilities

-2.0

3.0

8.0

2013 2014 2015 2016 2017

Professional & Business Services Information

Government Financial Activities

0%

4%

8%

12%

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

2013 2014 2015 2016 2017

Employment Unemployment

Employment vs. unemployment rate

Employment by industry Office employment trends (12-month change, 000s)

Job growth by sector (12-month change)

Job growth (12-month change)

Job growth by sector (12-month change)

© 2017 Jones Lang LaSalle IP, Inc.

All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Andrew BatsonVice President, Director of Research+1 216 937 [email protected]

Abby ArmbrusterResearch Analyst+1 513 252 [email protected]

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. AFortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

About JLL Research

JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions.

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Jll cincinnati office outlook q1 2017

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