The mood was optimistic at the 4th annual Cincinnati Commercial Real Estate Summit held earlier this month at the JACK Casino. And why not? The speakers at the big event – held by Midwest Real Estate News and REjournals – agreed that the future is bright for the Cincinnati commercial real estate market.
That was especially true during the Capital Markets panel, in which moderator Susan Branscome, senior vice president and managing director with NorthMarq, led a panel of Cincinnati CRE heavyweights though a spirited question-and-answer session.
Scott Abernethy, senior director with Cushman & Wakefield, told the crowd of more than 175 that the office sector remains a strong one in Cincinnati and its suburbs. Part of the reason for this is the overall health of the national economy. When the economy is strong and new jobs are created, it’s little surprise that the office market responds positively.
But another factor boosting Cincinnati’s office sector? Competition among employers. Abernethy said that companies are seeking modern office space filled with amenities as a way to attract the top talent to their businesses. They’re also seeking office space in the more popular areas of the city, again as a way to attract the best employees.
“What’s interesting is that tenants are willing to pay higher rents for spaces that will attract employees,” Abernethy said. “They are willing to pay more than we’ve ever seen them pay in the past in Cincinnati to attract talent.”
Panelists had plenty of positives to say about the industrial market in and around Cincinnati, too. John Gartner, brokerage senior vice president and principal with Colliers International, said that demand remains high here for industrial space. That doesn’t mean, though, that there aren’t challenges.
As Gartner said, the “bread and butter” of the Cincinnati industrial market are spaces built for tenants that need about 150,000 square feet. Today, though, developers are building bigger industrial spaces, often as large as 500,000 square feet. The owners of these new larger buildings are still searching for enough tenants to fill them, Gartner said, which accounts for the slight slowdown in industrial absorption rates here last year.
Alfredo Gutierrez, president and founder of SparrowHawk, said that the biggest challenge industrial developers face today is a lack of skilled labor.
“It remains difficult to find the labor that they need,” Gutierrez said. “A large component of their bottom line revolves around finding the right employees.”
The growth of ecommerce, of course, has been a boon to the Cincinnati industrial market. That’s a common refrain today throughout the Midwest, and conference panelists said that the growth of Amazon and other online players while a challenge for the retail market continues to boost the performance of the industrial sector.
One change in the industrial sector today? Gutierrez pointed to the lease terms that companies are looking for. Today, companies want shorter leases for their commercial space.
“I see a lot of shorter-term leases being done today,” Gutierrez said. “Back in the economic downturn, companies wanted longer leases, 10 years or 15 years. They knew that pricing was at a low point. Today, though, they think that pricing is at a high point, so they want shorter-term leases. I think corporate America is a bit concerned about what might be coming on the horizon when it comes to the economy.”
John Thompson, managing director for retail with Newmark Knight Frank, said that the retail market in Cincinnati is going through what he called a period of seismic change. Much of that can be traced to the growth of ecommerce and the changing shopping habits of consumers.
But Thompson offered some hope, too. Experiential retailers are doing well in Cincinnati. These retailers offer experiences shoppers can’t just order online. Entertainment centers, fitness clubs and restaurants are examples of retail businesses that can, and are, thriving today.
And in more good news, Justin Vanderglas, a CPA and manager with Clark Schaefer Hackett, said that a growing number of his clients are interested in starting new developments. Even better? Vanderglas said that the financing is there along with the demand.
“This is a good time to start a new development,” Vanderglas said. “We have never been in a more favorable tax environment for developers, especially with interest rates where they are.”