THURSDAY, NOVEMBER 13, 2008
by Dan RafterCincinnatiJeff Bender can't deny the statistics: Net absorption in his city of Cincinnati has been decreasing since 2005. Vacancies are increasing in most market sectors.
"At first glance, there isn't much good news," admits Bender, a principal and senior vice president with the Cincinnati office of Colliers Turley Martin Tucker.
But the negative statistics aren't the only story in Cincinnati, Bender adds. The city, like many in the Midwest, has in the past been a consistent one for commercial real estate development. During the boom times, Cincinnati sees vacancies drop and new commercial projects pop up. But the city doesn't see the overbuilding that some "hotter" markets across the country do.
This holds true, too, when the economy slips and the commercial construction industry struggles. Cincinnati certainly isn't immune to the building slowdown. But the city doesn't see the dizzying drops in activity that other markets - which overbuilt during the good times - suffer from.
"When we have the upside of the cycle in the country, we tend to lag that upside. We don't have incredible peaks in our statistics, lease rates, property values or any of the major statistics," Bender said. "At the same time, when we're in the troughs like we are now, we don't get buried as much as those other markets do. That's helpful now. We are slower, no doubt, but it's not been as devastating a slowdown as it could have been."
Bender isn't alone in his view of Cincinnati. Other brokers agree: This year hasn't been the city's best. But it could have been worse.
Looking at the numbersThe third-quarter market report from CresaPartners in Cincinnati showed that the city's office market remained mostly flat during the quarter. That's not necessarily bad news considering the overall state of the nation's economy.
According to the report, the Class-A office market in the city's Central Business District picked up nearly 50,000 square feet in positive absorption. The Class-B office properties in the same market gave back 25,000 square feet. The suburban Class-A market did not do as well, with availabilities rising from 19.3 percent to 23 percent. The Class-B market in the suburbs remained flat, with availabilities at 24 percent, according to CresaPartners.
Perhaps most indicative of the country's struggling economy, developers announced no new speculative office buildings during the third quarter, the first time that has happened in several years.
The city's industrial market held steady in the first half of this year, according to a mid-year report by Colliers Turley Martin Tucker in Cincinnati. The industrial vacancy rate for the first six months of the year stood at 6.79 percent in the greater Cincinnati area, according to the report. The second quarter saw a positive absorption of 264,946 square feet, while the second quarter had a positive net absorption of more than 1.3 million square feet.
This isn't to say that there's nothing to worry about. The report also mentions that the closure of the Ford plant in nearby Batavia would be felt in the remaining half of 2008 when it contributes a negative net absorption of 1.8 million square feet.
Notable industrial activity in the first half of the year includes Printograph Inc. leasing an entire 80,000-square-foot building in the Riverview Business Park in Hebron, and Pack Rat leasing 38,000 square feet in a 168,000-square-foot building in Fairfax.
Retail, of course, is struggling in the Cincinnati market, as it is in most markets across the country. There are some positives in the Cincinnati region, though. The Colliers report points to the Kenwood Towne Centre in the Kenwood area. This shopping center will soon see the addition of a 140,000-square-foot Nordstrom. The shop, slated to open in September of 2009, will be the first Nordstrom to open in the southern portion of Ohio.
The Kenwood Towne Centre will also be home to the first Crate & Barrel store in the region, which will occupy 34,000 square feet at the shopping center. Also, Borders has signed a lease for 28,000 square feet on two floors in the mall. The shop was scheduled to open in November.
Dealing with a sluggish economyAlan Piker, managing principal of the Cincinnati office of CresaPartners, says that the nation's struggling economy has had an impact on Cincinnati.
The commercial market here isn't dying, he says, but it isn't exactly booming, either.
"Our perspective is a little different," Piker says. "We want to be positive, but at the same time, our firm works exclusively with tenant/buyer representation. I always feel that when you see reports or comments given by traditional brokerage firms, you have to remember that they also rep landlords. Their job is to show as healthy a business market as they can from the landlord's perspective. We are looking out for our tenants' interest. We are a little more unbiased in our comments about the marketplace. The numbers are what they are. They don't lie."
Piker says he is starting to see companies take more time to make decisions regarding commercial real estate development. The length of the terms they are willing to commit to has shortened.
"Everyone is nervous," he said. "We are seeing delays in the decision-making process. Of course, that is completely understandable given the economy."
To date, the Cincinnati region hasn't seen too much fallout from the country's recent economic woes, Piker said. This is to be expected, though, because Cincinnati's sales cycles are fairly long. Piker predicts that the city will see more fallout from the national economic struggles during the fourth quarter of this year.
Piker does see some areas in the Cincinnati region that are still doing well despite the economic slowdown. Development has been steady along the Interstate-71 corridor, Piker says. The city's West Chester corridor has also remained strong, he said.
For the time being, though, Piker expects development in Cincinnati to slow as lenders and developers both err on the side of caution.
"Developers are challenged right now," he said. "With the underwriting, the requirements are so strict now. You are looking at needing 50 percent pre-leasing and 30 to 40 percent down payments in some projects. Starting a project with very little or no pre-leasing today would be a surprising feat."
Bender, from Colliers, agrees that commercial activity will slow during the rest of the year. But he also has high hopes that the city will ride out the nation's building slump thanks in large part to its many positives.
"The economy here is extremely diversified," Bender said. "We have a number of different industries in the city. We are not reliant on one particular industry to carry the economy. We are just a nice, relatively conservative city. People don't tend to invest on a whim and expect unrealistic returns here. That's not to say, of course, that this isn't an attractive town. It has a number of features and benefits that the locals know about. We have professional sports, the arts, low crime, little traffic. This is a good place to live and do business in."
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