The Northeast Ohio office market ended 2014 with minimal fanfare statistically speaking, but the future looks exceedingly bright. Overall, vacancy increased a minimal .32 basis points, mainly due to the addition of a now vacant suburban office building in the Southwest submarket, formerly occupied by NASA. But this seemingly lackluster activity doesn’t paint the complete picture. The Central Business District (CBD) is in the midst of a renaissance, which took center stage in 2014. The city’s resurgence received national recognition and began showing up on many “best of” lists. In addition, the Republic National Committee has taken note of the world-class facilities and amenities and decided to hold their 2016 National Convention in Cleveland. Northeast Ohio based developers and entrepreneurs have been the primary catalysts for this ongoing transformation, forever changing the landscape of downtown Cleveland.
In the CBD, the Class A category, which includes 11 buildings, is the healthiest segment of the downtown office market with a year-end vacancy of 15 percent, down slightly from 15.23 percent at the end of 2013. Some tenants have relocated to the newest Class A building, the Ernst & Young Tower in the Flats East Bank, freeing up opportunities for tenants currently in B buildings to upgrade to more efficient and higher-quality space. Two downtown companies downsized in the class A category, stifling gains in occupancy. In the class B category, Barnes Distributing was acquired by MSC Industrial Supply Co. in 2013 and relocated many business operations out of state, closing the Cleveland office in the summer of 2014, vacating nearly 40,000 square feet at Tower at Erieview. Also in the CBD, there is meaningful progress toward the conversion of functionally obsolete inventory of class B- and C office buildings, prompted by the voracious demand for downtown housing. The process of repurposing office buildings can take several years to achieve because existing tenants need to be relocated before construction can proceed. In the next 24-36 months, there should be an appreciable and steady reduction in vacancy in the class B and C categories as a result of these conversions. Link to full report.