The commercial real estate market in Cincinnati isn’t unlike the markets in other major cities across the United States: Certain commercial sectors – most notably industrial and multifamily – are thriving today, while others are still dealing with the fallout from the COVID-19 pandemic.
The good news in Cincinnati? CRE activity is trending up in this key Ohio city. And Alex Cate, research manager for the Greater Cincinnati region of Colliers, says he expects the fortunes of the local CRE market to only improve as 2022 moves on.
Midwest Real Estate News recently spoke with Cate about the status of Cincinnati’s commercial real estate industry. Here is some of what he had to say.
Let’s start with the one commercial sector that seems to be booming everywhere, industrial.
Alex Cate: The Cincinnati market saw record industrial absorption in the fourth quarter of 2021. The market absorbed 5.7 million square feet of industrial space. For all of 2021, our market saw 10.6 million square feet of net industrial absorption. For us, that is a massive number. Absorption skyrocketed for us in the fourth quarter, and this took place in all the submarkets in our area. The leasing activity has been crazy in our market. That came to a head in the fourth quarter.
Does it look like industrial will remain hot in Cincinnati in 2022?
Cate: We saw 725,000 square feet of completions for industrial in the fourth quarter of last year. This was all build-to-suit projects or projects with tenants already lined up. We have about 6.5 million square feet of industrial space under construction. A lot of these facilities are build-to-suits, but we also have a decent amount of spec supply coming online. We have some major bulk-distribution facilities under construction. And vacancy rates are at 4.5 percent, which is very low.
This is not the norm for our market, so we do expect to see a tightening eventually. The demand is crazy right now. The supply can’t keep up. We have our own internal market tracker, keeping track of which of our tenants are looking for space and what kind of space they are looking for. As of our last count, by the end of 2021 we had more than 170 tenants looking for a combined 15 million square feet of industrial space. That is intense demand for the Cincinnati region. A lot of the demand is for bulk distribution. Everyone wants to grab that space. They want to solve some of the supply-chain issues they are facing.
It sounds, then, like you are expecting another busy year for industrial in 2022.
Cate: Once there is even a whiff of news of the spec supply going up, prospective tenants are chomping at the bit. We do expect there to be a slight tightening of the market in the summer. Any move-outs will have happened by then. We expect that leasing activity will slow a bit. We still expect growth in the industrial market this year, but not growth that looks like it did in 2021. Last year was truly incredible.
How about the office market? Obviously, the office sector has been struggling with plenty of uncertainty. Is that the case in Cincinnati, too?
Cate: Office is sort of the flipside of industrial. It’s a tale of two headlines: Industrial fourth-quarter activity set records. For office, the fourth quarter saw record occupancy losses. Not since the early 2000s have we seen negative absorption for the office market in Cincinnati. But we saw that last year in our market. The losses have been dramatic. Since March of 2020, the start of the pandemic, we have had about 1 million square feet of negative office absorption. The vacancy rate in this sector is equally rough, hitting 16.2 percent in the fourth quarter of last year. That is up 180 basis points on a year-over-year basis. It has been rough for the office market in greater Cincinnati.
Are you seeing any signs of hope in the local office market?
Cate: There was some optimism in our fourth-quarter report. We had some office users that did take new space. But at the same time, there were some major move-outs and downsizings. This year it still looks a little murky.
One of the big office stories is the redevelopment of the former Macy’s at Fountain Square in downtown Cincinnati. There is a mixed-use development being built there called the Foundry that will include about 103,000 square feet of office space. It will also include ground-level retail. We have already seen Deloitte move in, taking 30,000 square feet of office space. Turner Construction has also leased space in this new building. The Foundry project, we think, has the potential to revitalize downtown.
Are there new opportunities for tenants to move into higher-quality office space?
Cate: We hope that tenants do want to lease in Class-A buildings. If a company decides that it wants high-quality, premium office space, it will have options today. The Foundry is an example. We think projects like that will attract companies.
There’s also the Ovation mixed-use development in Newport, Kentucky. That project will include a hotel, a concert venue and 103,000 square feet of premium Class-A office space. That’s another example of Class-A space in the middle of an amenity-rich area that should attract companies.
We are cautiously optimistic about the office market in the long run. But for right now, it is hard to tell. Companies had announced their back-to-the-office plans but then put them on hold again because of the Omicron variant. But some companies already have their employees back, at least a couple of days of week.
What are you seeing in the Cincinnati-area retail market?
Cate: We did see some positive absorption in the retail sector in 2021, mostly within mixed-use developments. For both office and retail going forward, mixed-use developments will be a major driver of growth in our market.
A lot of our brokers, though, see a holding pattern in the retail sector. There is a lot of consolidation happening now. Major retailers that have locations in strip malls close to each other are making moves with those locations. They might be moving from the strip centers where their locations are one of only a couple of storefronts and moving to newer, more popular strip center locations.
If there is a success-story location, everyone is pouncing on that. They are leaving some of these strip centers that aren’t performing as well. The strip centers in the northern part of our market, which don’t have a lot of proximity to downtown, are adding to our negative absorption numbers now.
I would guess that we’ll see some slight positive absorption this quarter. We might see some restaurant and shop openings in downtown Cincinnati. That would be great for the office market. We are slowly, very slowly, seeing activity returning to downtown. There is a slight positive in retail, but we are still largely in a waiting period.
