Expect industrial properties to continue to do well while offices continue to recover during the pandemic-induced upheaval of the market, said Newmark Vice Chairman Terry Coyne.
According to a recent report from the commercial real estate firm (NASDAQ: NMRK), the office real estate market in Cleveland has failed to raise rents in pace with inflation, even with millions of square feet slated for residential conversion with projects like 55 Public Square.
This, Coyne says, could be offset by offering more tax abatements to companies that are seeking to move or stay here.
“You have a market that has shrunken and rates have stayed the same, but then the costs have gone up,” Coyne said. “I think the city of Cleveland needs to give abatement to people who want office buildings. We have to have a larger discussion about it — while apartment conversions are great, offices are better, and they bring in more people.”
Inversely, the industrial market in Cleveland has reached construction and inventory levels unseen in the region for more than 20 years, which has resulted in record-high rent prices as well. The asking price for an industrial property in Greater Cleveland has risen to $5.07 per square foot, the highest rate since 2001.
Coyne shared more about his perspective on local real estate with the Cleveland Business Journal, including the central business district, the suburbs and the Flats.
The interview has been edited for brevity and clarity.
I think you have some buildings that are going to be in trouble unless there are landlords that are willing to invest millions of dollars to improve the buildings. Since 2013, it’s been a steady decline.
There’s a few trends. There’s some dead buildings to begin with. We’ve seen office space shrink as far as usage. Now that’s getting smaller. You’re putting more people in less space, but that can’t account for all 8 million [square feet] in shrinkage. No other city in America has experienced that same kind of decline as we have.
I think it’s an example of adding amenities to the building, and it works. I think what Bedrock is doing at Tower City is amazing. CrossCountry Mortgage is coming downtown. Honestly, they should throw a parade for them.
You can look at the Aecom Building … the only building that has increased in occupancy and rent. The answer is amenities. You need to make them like hotel lobbies. … Right now if you’re spending money, the price is reason.
They’re used to it. It’s what they know … but the labor market likes downtown Cleveland because people are talking about hybrid work about three days a week. … We actually should do well in a hybrid environment due to the availability of parking.
It’s hard to compete with the waterfront access that the Flats has. I think the next area is going to be on the west bank of the Flats. In downtown, there’s not as many places as before where you can get a good deal on a conversion into something for cheap. So when I think, “Where’s the next Tremont?” it’s the west side of the Flats.
It’s as strong as [it’s] ever been in my career. It’s a bright spot. The reshoring is occurring. It helps the Midwest, it helps the Rust Belt. The closer you can get to employees, the better you are. What people are paying for land and buildings is more valuable than office buildings. It’s all good news on the industrial side, whether it be manufacturing, distribution [or] both. Cleveland is booming when it comes to that.
Rent has gone up quite a bit in such a short period of time. Can you continue to build at these prices? There’s a big run-up in values and rent, and at some point, does that level off? Do people find more ways to run their warehouses? Industrial properties are selling more than office by a lot.
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