Cincinnati Retail

Nachtrab

Submitted by Chris Nachtrab, retail associate with the Cincinnati, Ohio, office of The Everest Group/TCN Worldwide. Posted 09/18/07.

What area is your expertise?
• I work primarily in the greater Cincinnati/northern Kentucky market.

What trends do you see presently in retail development in your area?
• New development in the market is low primarily due to the limited number of potential anchor tenants active in the area. There are really only six or seven big-box retailers that are aggressively expanding in the greater Cincinnati area. If you are not able to get one of those companies on your site, you are going to have a very difficult time getting a large project developed.

What type of retail product is doing well in your area?
• While many people said that because of our climate, lifestyle centers would not work in Cincinnati. Jeffrey Anderson proved them wrong. Not only have lifestyle centers done well, they have forced the malls to add lifestyle components in order to stay competitive. Even new strip centers seem to have more gingerbread on the façade to present that lifestyle image.

What retailers are new to your area?
• Books-A-Million opened their first store at Bridgewater Falls and are planning several others. Crate & Barrel and Nordstrom will be opening their first Cincinnati stores in Kenwood. Menard’s is looking to locate their first Cincinnati store in Fairfield Township.

Who are the active retail developers in your area?
• Bear Creek Capital has several high-profile developments in the works, including River’s Crossing, Kenwood Towne Place and Newport Pavilion in northern Kentucky.

Please name one or two significant retail developments in your area. What impact will these projects have on the market?
• Construction has begun on the IKEA store in West Chester. The 339,000-square-foot store is being built by IKEA. Local developer and contractor, Schumacher Dugan, sold IKEA the site.
     Bear Creek’s Kenwood Towne Place is a 585,000-square-foot office and retail development. Retail tenants will include Crate & Barrel, L.A. Fitness, Kroger Fresh Fare and The Container Store. The project should be finished in the summer of 2008.

Where is the majority of development taking place? Why is this area doing well?
• West Chester and Mason are still among the most popular areas for new retail development. Hyde Park and Kenwood also are very desirable. Redevelopment projects seem to be leasing quickly and at very high rental rates. As to why they are doing well? That is where the money is.

What area do you expect to be the next big retail development market? Why?
• The South Lebanon/ Hamilton Township market will experience enormous growth over the next 2 years. Construction has started on Bear Creek’s Power Center. Kohl’s should be open late this year. Lowe’s Home Improvement Warehouse and Target will be open in 2008. Anchored by Dillard’s, the lifestyle center is currently scheduled to open at the end of 2009 or beginning of 2010. Planet Properties has begun construction on the Super Wal-Mart. Other boxes have been touring the market as well.

Please describe the retail leasing activity in your area.
• Last year was a slower year for a lot of the B space landlords in town. The phones seem to be ringing more than last year but activity is still sluggish in the secondary markets. It also seems that it is taking longer to get deals done. From the 1,200-square-foot nail salon on up, it seems that the leasing process has become more complicated and takes more time to complete.

What major leases have been closed recently?
• Crate & Barrel will occupy 34,000 square feet at Kenwood Towne Place. Kroger has announced that they will open a 75,000-square-foot Fresh Fare store in the same project. Nordstrom has announced that they will build a two story, 140,000-square-foot store at the former Parisian space at Kenwood Towne Center.

Please give a measure of retail vacancy rates and a measure of available sublease space.
• Overall retail vacancy in the Cincinnati market stands at around 12 percent. I don’t anticipate a significant change in that number this year.

Would you like to make any additional observations about the retail market in your area?
• Two major developments that are still up in the air are the Banks project, located downtown and Rookwood in Hyde Park/Norwood. They are being developed by Jeffrey Anderson and Miller Valentine. Both have suffered at the hands of political forces. The developers of Rookwood lost an eminent domain state supreme court case. Three hold-out landowners have stopped the $125 million mixed-use project from moving forward. The developers have spent nearly $20 million acquiring and clearing the rest of the site.
      The Banks project is an 11-acre site situated between the two stadiums along the Ohio River. It is an enormously complex city/county private/public partnership that has been in the work with numerous developers in the past 10 years. Developers Carter Real Estate and Harold A. Dawson recently have reached an agreement in principle with the local governments and hope to formalize the legal documents within the next couple of months. The development could be even further complicated by Corporex’s planned Ovation Development offering a similar product just across the river in Newport.

Cleveland Retail

Submitted by Keith Hamulak, sales professional with the Cleveland office of CB Richard Ellis. Posted 12/28/07.

Hamulak

What area is your expertise?
• Retail services in Northeast Ohio

What trends do you see presently in retail development in your area?
• The current trend across the board is an increase in environmental awareness. Developers selecting sustainable sites, retailers constructing LEED buildings, and city and county governments working together to minimize the negative impacts on the environment while maximizing existing infrastructure.

What type of retail product is doing well in your area?
• Power centers, grocery anchored shopping centers and convenient strip centers.

What retailers are new to your area?
• Menards, Massage Envy, Five Guys Famous Burgers and Fries and a Cabela’s are expected.

Who are the active retail developers in your area?
• First Interstate Properties, Liberty Development Group, Snider-Cannata and Centro Properties.

Please name one or two significant retail developments in your area. What impact will these projects have on the market?
• The redevelopment of Westgate Mall in Fairview Park is the first redevelopment of an enclosed regional mall in Northeast Ohio into a lifestyle and power center. Centro Properties, in partnership with the Richard E. Jacobs Group, redeveloped the property. The center is anchored by Target, Lowe’s Home Improvement Warehouse and Kohl’s. Additional lifestyle retailers include Ulta, Massage Envy and The Melting Pot.

Where is the majority of development taking place? Why is this area doing well?
• Suburban greenfields off major interstates. Development is occurring further away from the City of Cleveland core due to residential sprawl.

What area do you expect to be the next big retail development market? Why?
• Far west suburbs of Lorain County, Southern Medina County and Stark County. Residential growth in these markets as well as a lack of retail product serving the market.

Please describe the retail leasing activity in your area.
• The retail leasing market has been good. I expect the leasing market to slow over the next 12 months.

What major leases have been closed recently?
• Urban Active Fitness signed two leases in the 40,000 to 50,000-square-foot range at lifestyle centers on both the east and west sides of Cleveland.

Please give a measure of retail vacancy rates and a measure of available sublease space.
• The vacancy rates will be at or near double digits (10 percent) in 2008. This is for the entire Cleveland/Akron/Canton MSA of approximately 78 million square feet of retail and 3 million people.

What types of retailers should look into your market in the coming year? What type of retail is needed?
• Full-line grocery stores to compete with Giant Eagle and Super Wal-Mart.

Would you like to make any additional observations about the retail market in your area?
• I anticipate a significant slowdown of growth for retailers.

Cleveland Multifamily

Maeder and Smeader

Submitted by Vicki Maeder, vice president and Nicole Smeader, associate with CB Richard Ellis in Cleveland. Posted 9-15-06.

What area is your expertise?
• Vicki Maeder and Nicole Smeader are members of the Investment Property Group and the Private Client Group within CB Richard Ellis, Inc.

What trends do you see presently in multifamily development in your area?
• The majority of development is occurring in downtown Cleveland and much of it is directed towards mixed-use projects. At East 12th Street and St. Clair Avenue, Zaremba is developing a mixed-use project called The Avenue District which will generate more mass in the city. The project will incorporate for-sale housing units, including loft style condos and traditional town homes, with street-level retail and restaurant space. The Cleveland area is also experiencing a significant increase in the development of for-sale and condominium properties.
Several projects are also underway in the Warehouse District, Gateway and Flats neighborhoods. The Warehouse District is characterized by the conversion of old warehouse space to trendy, loft-style residential apartments. The Warehouse District is also home to much of the City's nightlife and offers residents a convenient and enjoyable combination of restaurants and bars. In the Gateway District, multifamily development has taken the form of conversion of the upper floors of Class B and Class C office buildings. A few newly constructed buildings have recently completed. The Gateway District is situated near Quicken Loans Arena, home of the Cleveland Cavaliers, and Jacobs Field, home of the Cleveland Indians. Traditionally known as an entertainment district, The Flats is experiencing a rebirth with the success of Stonebridge Condominiums and Apartments. Additional housing units, plus retail spaces, offices and parks are being planned.

Who are the active multifamily developers in your area?
• Cleveland is home to many strong and active developers. In addition to The Avenue District, Zaremba has developed a number of residential communities throughout the region. The K & D Group, Inc. has also assisted in the revitalization of Cleveland with the Stonebridge Waterfront apartment and condominium community. MRN Ltd. has added new life to downtown Cleveland with The East Fourth Neighborhood, a mixed-use project offering numerous housing, dining and entertainment venues. Gross Builders and Richland Development have also helped to drive development by offering a variety of multifamily housing communities throughout the Northeast Ohio region.

Please name one or two significant multifamily developments in your area.
• Pinnacle Condominiums is the first luxury new construction condominium complex located in the Warehouse District. Developed by Gus Georgalis, Pinnacle is a full service, gated, high-rise community. The project's 80 units offer high-end amenities and panoramic views of Lake Erie and the city.

Where is the majority of development taking place? Why is this area doing well?
•The majority of development is taking place downtown due to factors including newer units, increased amenities and shopping options and convenience in accessing entertainment, recreation and the CBD.

What areas are doing well in terms of apartment leasing?
• Properties offering residents multiple amenities and new or improved units have the most solid occupancy rates as well as above market rents.

Please give a measure of apartment vacancy rates.
• Our statistics indicate that the overall apartment vacancy rate in Downtown Cleveland is approximately 10 percent.

Please give a measure of condo sales activity in the area.
• Condo conversion is a hot topic in downtown Cleveland, especially in the Warehouse District and The Flats. Over the past few years, some multifamily projects built approximately 15 years ago have been converted to condominiums as tax abatements, which restricted the properties from being sold, have expired. There is a municipal goal of growing both the tax base and the population in the downtown area and progress towards this goal is aided by condominium conversion. Cultural attractions, increased amenities and shopping and shorter commute times are drawing in some suburbanites. We expect this in-migration to continue as the city promotes this focus on downtown living.

What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in 2006?
• As interests rates have increased, some of the incentives for renters to buy homes have dissipated. Other potential homebuyers are priced out by skyrocketing home prices or find they cannot afford their mortgages as adjustable rates climb. Improvements in the job market may also improve occupancy rates as fewer people seek roommates or move from family homes. This should help apartment occupancy rates as well as dissipate the widespread use of lucrative concessions.

What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market?
• Cleveland's projected job growth of +/- 1.3 percent over the next three years is lower than the projected regional and national average during the same period. Employment is predicted to grow at 7 percent through 2010, with employment in the Midwest growing 4.4 percent in the same period.

Cincinnati Multifamily

Dietz

Submitted by Paul Dietz and Kevin Larimer, partner and senior investment advisor with the Detroit office of Hendricks & Partners. Posted 09/21/07.

What area is your expertise?
• Our area of expertise is the Cincinnati apartment market.

What trends do you see presently in multifamily development in your area?
• It looks like new apartment development will slow down in the coming years barring a change in economic growth. Job growth is modest right now and many developers are in a wait-and-see holding pattern. Condominium developers are still building, albeit at a slower rate as well.

Larimer

Who are the active multifamily developers in your area?
• Two of the more active multifamily developers in the area are The Drees Company and Towne Properties. I believe The Drees Company completed more than 500 condominium units over the past few years and has several thousand in the pipeline. They also have a few apartment projects in planning phases. Towne Properties also has many condominium projects in the pipeline.

Please name one or two significant multifamily developments in your area. What impact will these projects have on the market?
• There has been little in terms of large-scale multifamily development, but if the developers of what would have been the Rookwood Exchange project decide to move forward with some multifamily units on the site, it would be of some significance.


Where is the majority of development taking place? Why is this area doing well?
• Much of the recent apartment development has occurred in the outlying northern counties submarket. This area has been popular with developers due to an abundance of available land and above-average population growth. The addition of new supply to this area has increased vacancy to 9.5 percent however, second highest among Cincinnati submarkets.

What area do you expect to be the next big development market? Why?
• Development is expected to slow until economic growth picks up again, but developers do have some large projects planned for the Central Business District (CBD) submarket once conditions become more favorable. However, we expect many will remain tabled until 2008-2009 and some to be dropped completely.

What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing?
• The CBD continues to perform well. Early data shows vacancy is down approximately 80 basis points so far this year. The Southeast submarket remains the tightest submarket with vacancy at 6.3 percent as of first quarter 2007. I’d expect both of these areas to remain among the best performing areas of the Cincinnati metropolitan area.

Please give a measure of apartment vacancy rates.
• The Cincinnati metropolitan area apartment vacancy was 8.8 percent as of first quarter 2007. Demand for apartments continues to fall further behind supply, which will likely result in rising vacancy as the year progresses. As mentioned earlier, there are areas outperforming the metropolitan area as a whole, such as the CBD, southeast, and northeast quadrant submarkets.

Please give a measure of condo sales activity in the area.
• Condo sales activity has been moving in-line with the local housing market. Prices are up slightly in first quarter 2007 after dipping in the second half of 2006. Because condos and houses are relatively affordable in this market, many potential renters are able to purchase instead of leasing. However, rising interest rates could help to offset this trend.

What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in the next year?
• We’ve seen a little slowdown in transaction velocity and that might be attributed to the increased cost of capital due to interest rates. I think interest rates might jump 25 to 50 basis points in the next year, if anything. If this happens, we might see velocity decrease slightly and any price appreciation moderate.

What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market?
• As of April 2007, year-over-year employment growth was a healthy 1.7 percent, though it is down from the previous 12-month period growth rate of 2.1 percent. The unemployment rate in April 2007 was 4.9 percent, down 40 basis points from last year. If job growth can persist for the remainder of the year, look to see more developers and investors flow more capital into this market.

Cleveland Office

Hurtuk

Submitted by Brian Hurtuk, vice president with CB Richard Ellis in Cleveland.
Posted 9-15-06.

What area is your expertise?
• My primary business line is in the Office Specialty Group of CBRE with a concentration on Landlord Representation in both Cleveland's central business district and throughout the suburbs of northeastern Ohio.

What trends do you see presently in office development in your area?
• The office market is currently being driven by tenants and their need for growth and expansion in existing buildings. We are probably 2 to 3 years away from any serious consideration for new speculative construction other than a potential owner/user.

Who are the active office developers in your area?
• In the CBD, Forest City Enterprises owns over 2 million square feet, KBS Realty Advisors owns approximately 1 million square feet and the Harbor Group owns approximately 1.2 million square feet. In the suburbs, Duke Realty Corporation owns over 2 million square feet, GE Capital owns approximately 1 million square feet, Org Holdings owns 800,000 square feet, and Munsell Realty Advisors, Inc. owns over 1 million square feet.

What area do you expect to be the next big development market? Why?
• Once new construction begins in the next several years, the eastern submarket should be the first to see new construction with the CBD being next.

What areas are doing well in terms of office leasing? Which areas are struggling with office leasing?
• The eastern submarket is currently the healthiest followed by the CBD which should continue to see a positive absorption for the next few years. The South/Rockside Road market should experience a vigorous 2007 and 2008.

Please give a measure of office vacancy rates. Please give a measure of available sublease space.
• Overall vacancy rates in Cleveland's metro market were 18.71 percent at mid-year. CBD rates were 20.87 percent and suburban rates were 16.73 percent. With a metro market inventory of almost 35 million square feet, there was just over 600,000 square feet of available sublease space.

What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in 2006?
• The current tenants' market should continue through most of 2007.

What is the status of job growth/(un)employment rates and what bearing will it have on the office market?
• In the Cleveland MSA, continued increases of business in professional and business services has helped boost employment in service-providing industries.

Cincinnati Office

DeFilippo

Submitted by Loren DeFilippo, research services manager with the Cincinnati, Ohio office of Grubb & Ellis/West Shell Commercial. Posted 12/11/07.

What area is your expertise?
• The Greater Cincinnati, Ohio metropolitan area — a seven-county area in southwestern Ohio and northern Kentucky.

What trends do you see presently in office development in your area?
• Speculative new construction and existing Class A buildings have captured the lion’s share of the nearly 1 million square feet of net positive absorption in 2007. In stark contrast, the Class B office market accounted for only 24 percent of this total. This trend is leading to increasing rental rates for Class A product while the Class B rents remain stagnant or are even on the decline.

Who are the active office developers in your area?
• Duke Realty Corp., Scott Street Partners, Al. Neyer, Inc., Neyer Properties, Inc. and Miller-Valentine Group

Please name one or two significant office developments in your area. What impact will these projects have on the market?
• Kenwood Towne Place is a mixed-use development adjacent to the high-end Kenwood Towne Centre regional mall currently under construction in the Kenwood submarket. The retail component will contain a Kroger and the area’s first Crate and Barrel along with a 250,000-square-foot office tower that has signed UBS as its first tenant. Nearby in this same relatively small office submarket, Redstone of Kenwood is a 160,000-square-foot office building under construction and developed by Scott Street Partners. CNG Corp. has signed for two floors or 64,000 square feet.

Where is the majority of development taking place?
• The Interstate 71 corridor between downtown and Kenwood (known as the Midtown submarket) currently has 1 million square feet of new office under construction.

Why is this area doing well?
• Proximity to downtown and the international airport located across the river in northern Kentucky, easy access, free parking and location near high demographic residential areas.

What area do you expect to be the next big development market?
• The Midtown urban infill sites, while few, will continue to attract the attention of developers.

Why?
• For all the same reasons stated above — allowing new office buildings in this area to achieve some of the highest net rents in the market.

What areas are doing well in terms of office leasing?
• The Midtown submarket as mentioned before along with Blue Ash and the I-71 corridor north of I-275. The Central Business District has also posted some good absorption numbers for the year as well as Northern Kentucky, which has recently suffered with near 30 percent vacancy rates.

Which areas are struggling with office leasing?
• The northwestern submarket known as Tri-County, located at the I-75/I-275 interchange, has experienced difficulties in recent years as the focus for new office activity has moved northward along I-75 to the Union Centre Boulevard area. Duke Realty is completing the sixth office building at Centre Pointe Office Park, which has experienced a high level of leasing activity over the past 7 years.

Please give a measure of office vacancy rates.
• As of the end of third quarter 2007 the overall vacancy rate for the greater Cincinnati office market was 18.8 percent.

Please give a measure of available sublease space.
• There was a total of 498,817 square feet of sublease space available in the greater Cincinnati area as of the end of third quarter, approximately 1.4 percent of the total office market.

What impact do current interest rates have on the office market?
• Interest rates will have only minimal impact on the office market as we forecast cap rates to increase by only 25 to 50 basis points.

What predictions do you have for interest rates and their effect on the office market in the next year?
• Although interest rates won’t be a major factor, tighter underwriting standards will make the availability of financing more difficult for highly leveraged and value add buyers. More emphasis will be placed on the financial strength of the property’s tenants and the equity position of the buyer. This will open up the fast lane for low leverage, quick performing investors to move to the front of the line for deals. Sellers will place greater emphasis on the surety of closure.

What is the status of job growth/(un)employment rates and what bearing will it have on the office market?
• Cincinnati continues to see declining unemployment rates which currently stand at 4.8 percent, just slightly higher than the national average of 4.4 percent.

Is there any type of office tenant absorbing a majority of space?
The primary growth industries will be health care, technology and financial services. Within the past 12 months, Cincinnati was selected by both Citigroup and Tata Consultancy Services for major IT support facilities. These two companies alone will bring nearly 2,000 new jobs in the technology sector.

What industries do you expect to expand in the next year to absorb a great deal of office space?
• The three major growth industries mentioned above will continue to drive demand for office space in the market.

What areas will be affected?
• The I-71 corridor from downtown to the northeastern suburbs will continue to see the most demand for office space. Pockets of health care related development are popping up in the Midtown area as well as the far northern suburban areas experiencing the highest level of population growth. Financial services will trend towards the more centralized submarkets of Midtown, Kenwood and Blue Ash.