1 MARKETVIEW Cincinnati Office, Office investment activity is on a hot streak Vacancy Rate 19.8% Asking Rate $18.82 PSF Net Absorption 24,977 SF Construction 1,266,248 SF *Arrows indicate change from previous quarter in Cincinnati Metro. Figure 1: Vacancy Rate vs. Lease Rate ($) Q1 211 Q3 211 Q1 212 Q3 212 Q1 213 Q3 213 Lease Rate Q1 214 Q4 214 Q2 21 Vacancy Rate 17.2 CINCINNATI OFFICE ACTIVITY The Cincinnati office market continued its momentum with strong leasing activity during Q3 21. As a result, large blocks of available space are becoming even scarcer. Submarkets such as Blue Ash, Kenwood and West Chester have few Class A large block options. Developers are taking notice and beginning to plan speculative office developments. There are currently six speculative developments totaling nearly 1.24 million sq. ft. of Class A office space that are planned or under construction. Under construction buildings include The Kenwood Collection (26,48 sq. ft.) and The Offices at Liberty Center (7, sq. ft.). Planned developments include Oakley Station (3, sq. ft.), Madison Center of Cincinnati (16, sq. ft.), Landings Park (143, sq. ft.) and The Greens in Kenwood (13, sq. ft.). In the Central Business District (CBD), Possible Worldwide renewed their lease for,486 sq. ft. at 32 W. Third. In the Central submarket, Encore Technology Group leased 9, sq. ft. at Central Parke IV where they leased the entire building. Also, isqft leased 7, sq. ft. at Rookwood Exchange, the new office/retail development off I-71, and CBRE Research 21 CBRE, Inc. 1
2 Riverhills Neuroscience leased 17,26 sq. ft. at Linden Point at the Lateral. The Blue Ash submarket was very active this quarter with investment sales, strong leasing activity and the announcement of a new speculative building. Trustaff, one of the fastest growing companies in the Cincinnati area, expanded and moved their headquarters to 4,613 sq. ft. at Fountain Point II, only two miles from their previous location, Blue Ash Corporate Center. Duracell Batteries leased 1,346 sq. ft. at Northmark II and Duke Realty sold their 8, plus sq. ft. portfolio to Apollo Commercial Real Estate out of New York. In the Fields Ertel/Mason submarket, Sedgwick leased 22,186 sq. ft. at Governor s Hill VI and SGS Automotive Services Inc. leased 14,78 sq. ft. at One Waterstone. Jurgensen Cos., a supplier of aggregate products, construction services and one of the largest private companies in the Cincinnati area, will start construction on a new three-story headquarters in the Tri-County submarket. The new building will be located at Mosteller Road, the site of the company s current headquarters. Figure 2: Key Office Transactions Size (SF) Tenant/Buyer Building Submarket 12, Barclaycard (T) Vora Technology Park Outlying Northern Submarket 9, Encore Technology Group (T) Central Parke IV Central 7, isqft (T) Rookwood Exchange Central 4,613 Trustaff (T) Fountain Point II Blue Ash 22,186 Sedgwick (T) Governor s Hill VI Fields Ertel/Mason Figure 3: Vacancy and Availability Rates 3 Vacancy % Availability % Q3 211 Q1 212 Q3 212 Q1 213 Q3 213 Q1 214 Q3 214 Q2 21 CBRE Research 21 CBRE, Inc. 2
3 INVESTMENT SALES ACTIVITY Over 1.2 million sq. ft. of office space sold in Q3 21, showing exceptional activity. Liquidity has returned and is showing more transaction volume than the past three years combined. In the Blue Ash submarket, activity has been hot and is generating investment sales. This attracts capital sources, institutionalized investors and the local private investors. Multiple sales show a strong trend of out-of-town investors acquiring commercial real estate across the Greater Cincinnati region, they want the better buildings in the better submarkets. The Blue Ash submarket has a number of characteristics attracting new office tenants and investors, including reasonable cost and tax structure. Blue Ash is booming in both leasing activity and investment activity and was ranked as the top suburban office market in the Midwest and one of the top three in the nation, by Boyd Co. Inc. In the past Duke dominated the suburbs, now that they are exiting the market there is more opportunity for local and out of town developers to de-monopolize the market. With strong underlying market fundamentals, opportunistic investors seeking value-add assets are finding limited opportunities forcing them to expand their criteria to include stabilized properties. The majority of office properties that traded in were largely stabilized with occupancy levels of 8% or higher. This represents a significant shift as the vast majority of sales in previous quarters consisted of under-performing buildings with relatively low occupancy levels. Office owners are responding to this enhanced liquidity by bringing more properties to market for sale and a number of new offerings will be hitting the market in early Q4 21 as current office owners seek to rebalance portfolios and recycle capital. Cincinnati is once again in favor amongst office investors seeking to place capital and achieve attractive yield levels. Competition is fierce for quality assets in primary markets which is causing both institutional and private equity investors to expand their acquisition criteria to include secondary markets like Cincinnati. This bodes well for the local investment sales market as we expect continued liquidity and price compression continuing into 216. Keith Yearout, Vice President, CBRE Figure 4: Key Investment Sales Activity Building Buyer Price ($) Submarket Pfeiffer Woods Westlake Center Lake Forest Place 14.2 Million ($12/Sq. Ft.) Blue Ash 16.9 Million ($9/Sq. Ft.) Blue Ash 23 Million ($98/Sq. Ft.) Blue Ash Blue Ash Business Place Matrix Realty 1.2 Million ($63/Sq. Ft.) Blue Ash Blue Ash Portfolio (Northmark I and Remington Park A&B) Neyer Properties 7.2 Million ($43/Sq.Ft.) Blue Ash Summit Woods II Jim Bates 1 Million ($1/Sq. Ft.) Blue Ash Triangle Office Park Neyer Properties 2.2 Million ($12.73/Sq. Ft.) Tri-County Deerfield Crossing 42 Million ($131/Sq.Ft.) Fields Ertel/Mason CBRE Research 21 CBRE, Inc. 3
4 CINCINNATI MSA The Cincinnati metro area has a total population of 2.1 million and is expected to grow.6% annually. It is the 3th largest office market tracked by CBRE, based on square footage. Total employment is estimated at 1,11, workers, with job growth and shrinking unemployment outpacing state and national averages. Cincinnati is home to nine Fortune company headquarters, including Macy s, Procter & Gamble, and Kroger. New job opportunities are coming to Cincinnati. Barclaycard US, the payments business of the Barclays financial firm in the United States, will open a new customer contact center at Vora Technology Park in Hamilton, Ohio. The customer contact center will add 2 new employees in 216 at this development, located at 11 Knightsbridge Drive. By the end of 218, the company expects to have up to 1, employees. Figure : Unemployment Rate Cincinnati Ohio National Q1 211 Q3 211 Q1 212 Q3 212 Q1 213 Q3 213 Q1 214 Q3 214 Source: Bureau of Labor Statistic, Ohio Labor Market Information,. CONSTRUCTION ACTIVITY Construction continues at the Banks, including the 34, sq. ft. GE Global Operation Center, 2, sq. ft. of retail space and 291 new apartments at Radius at The Banks. In addition, AC Hotel by Marriott is set to begin construction by the end of the year on a limited service 16-room hotel. VanTrust Real Estate, a Kansas City based developer, will soon break ground on a 143, sq. ft. Class A speculative building at 9999 Carver Road in the Blue Ash submarket. This is the first speculative building in Blue Ash since Landings II was developed nearly 1 years ago. The addition to the Landings development will be called Landings Park and is expected to be completed Q Developers are working on the Oakley Station office and retail development in the Central submarket and hope to include a $13 million hotel. Figure 6: Construction Activity (MSF) Q4 21 Q4 211 Q4 212 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q2 21 Kubicki Real Estate Partners also announced plans to build three office buildings on their recently purchased 17.9 acres of land in West Chester, Ohio. This would add approximately 3, sq. ft. of Class A space to the market. Construction on the development is expected to begin upon preleasing commitments. CBRE Research 21 CBRE, Inc. 4
5 Figure 7: Market Statistics Submarket Rentable Area (SF) Vacancy Rate Net Absorption Under Construction (SF) Average Lease Rate ($/SF/Y) Availability Rate CBD 12,429, ,7 34, CBD Peripheral 2,31, , Central 2,14, , , East 1,464,48 2. (4,72) Fields Ertel/Mason 2,844, (,8) Blue Ash 4,24, , Tri-County 3,38, , NKY 3,969, (32,33) Kenwood 1,211, (9,867) 368, West Chester 1,373,39.3 6,488 7, Cincinnati Metro Total 3,261, ,977 1,266, Figure 8: Suburban and CBD Market Statistics by Class Submarket Rentable Area (SF) Vacancy Rate Net Absorption Under Construction (SF) Average Lease Rate ($/SF/Y) Availability Rate CBD Class A 6,663, ,42 34, CBD Class B,389, , CBD Class C 376, (2,7) Total CBD 12,429, ,7 34, Suburban Class A 12,2, , , Suburban Class B 8,72, , Suburban Class C 1,77, (13,138) Total Suburban 22,832, ,42 926, CBRE Research 21 CBRE, Inc.
6 VACANCY RATES In the Cincinnati office market, demand has been intensifying and space options are dwindling. During the past four years, the CBD has witnessed the Class A vacancy rate decrease from 22.2% in Q3 211 to 16.% in. Contributing factors for this decreasing vacancy include businesses expanding and relocating to the CBD. Additionally, functionally obsolete Class B/C office buildings are being re-purposed and converted to multifamily or hotel uses. The Central submarket saw a 7.% decrease in vacancy from Q2 21 to due to the large lease transactions with isqft and Encore Technology Group. Figure 9: Downtown, Suburban and Metro Vacancy Rates 3 Downtown Surburban Metro Q2 214 Q3 214 Q4 214 Q2 21 NET ABSORPTION Metro area net absorption was 24,977 sq. ft. in Q3 21, the highest quarterly net absorption since 28. The positive figure was driven primarily by Class A product, which had over 137,71 sq. ft. net absorption. The Central submarket had the highest positive net absorption with 14,923 sq. ft. Central Class A net absorption was driven by isqft (7, sq. ft.) and Riverhills Neuroscience (17,26 sq. ft.) while Class B net absorption in the Central submarket was driven by Encore Technology Group (9, sq. ft.). Net absorption in Blue Ash increased from 42,948 sq. ft. in Q2 21 to 128,18 sq. ft. in. Summit Woods IV was completed and absorbed,72 sq. ft. of space. Deals contributing to the Class A positive net absorption include CH2M Hill (27,786 sq. ft.) and Shoptech Software (27,786 sq. ft.) at Summit Woods IV and BSI (8,1 sq. ft.) at Summit Woods II. Contributors to Class B positive net absorption include Trustaff, Milacron Inc. and InfoTrust, who leased over 7, sq. ft. AVERAGE ASKING LEASE RATES Cincinnati asking lease rates remained steady during. The metro direct average asking lease rates increased year-over-year from $18.7 in Q3 214 to $18.82 in. Office space in the Kenwood submarket maintained the highest average asking rental rate at $23.63 per sq. ft. Figure 1: Net Absorption CBRE Research 21 CBRE, Inc. 6 (SF) (1) (2) (3) (4) Q3 212 Q1 213 Q3 213 Q1 214 Q3 214 Figure 11: Direct Average Asking Lease Rates (FSG) ($) Q2 21 Q1 211 Q3 211 Q1 212 Q3 212 Q1 213 Q3 213 Q1 214 Q3 214 Q2 21
7 Miles KM West Chester 7 71 Tri-County Fields Ertel/Mason 27 Blue Ash Central Kenwood CBD Peripheral CBD 471 East Northern Kentucky CONTACTS CBRE OFFICES Demetri Sampanis Research Analyst Maggie Lehmkuhl Researcher CBRE Cincinnati 21 E. Fifth Street, Suite 12 Cincinnati, Ohio 422 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.