After a half-decade of development held in check, tightening vacancies in the industrial and office sectors are fueling construction possibilities throughout Greater Cincinnati. However, preleasing requirements continue to put a damper on developers' aspirations.
One sign of the turnaround is evident by the kinds of institutional players leaving the market as much as those entering. Travelers Insurance this year sold off about half of the 10 or so Cincinnati properties it has taken back in recent years. Meanwhile, pension funds and other institutional investors have been keen on the area, buying the Airport Exchange Business Park, Glenway Crossing shopping center, the Florence Plaza in Florence, Ky., and a new K mart in Northern Kentucky.
Heaviest activity is centered in outlying areas and around the Cincinnati/Northern Kentucky International Airport in Hebron, Ky., where Delta Air Lines capped off a $375 million expansion in December. Construction is also brisk in Warren County, where construction of a $280 million health care research center by Procter & Gamble is spurring retail and residential growth.
A pair of high-profile projects moved forward in downtown Cincinnati as well. Construction is continuing on the Aronoff Center for the Arts, a three-theater complex slated to open in the fall of 1995. Downtown's Fountain Square West parcel, considered a prime development spot in the city, will be home to a new Lazarus department store topped by a $17 million high-tech theater complex that proponents say will draw 1 million visitors per year. The store is targeting a fall 1996 opening.
Office, industrial has tightened
After negative absorption numbers in two of the past four years, downtown office space is tightening.
CB Commercial reported that 278,576 sq. ft. of newer Class-A office space has been absorbed in the first nine months of the year.
"The office market continues to tighten with selected submarkets dropping below the magic 10% vacancy rate," stated Jeff Tulloch, executive vice president in the Cincinnati office of The Galbreath Co., Columbus, Ohio. "This has not as yet stimulated new developments, but a number of projects are poised to go when adequate preleasing is achieved."
Cincinnati Office Market
- Midyear 1994 -
(*)Total operating costs may consist of a variety of other costs in addition to energy and taxes.
Source: ONCOR International
"We think (downtown vacancies) are going into the single digits sometime next year, which would potentially suggest we may be in need of future development," said Craig Roberts of CB Commercial. He believes Class-A rental rates, now at about $18 net, can drop further before new towers arise.
The latest numbers show that Class-A downtown office vacancy has shrunk to 8.6% and downtown Class-B buildings are mired in a 27% vacancy. Suburban office vacancies are at 17% with Class A at 16% and Class B nearly 20%.
"Cincinnati's dynamic office growth in the late 1980s added an enormous amount of new space to the market," said Tulloch. "In the early 1990s, this space is being rapidly absorbed.
"The office space alternatives for large users are dwindling rapidly," he continued. "In a recent client search, we found only six spaces able to accommodate the 100,000 sq. ft. requirement. This dearth of alternatives will stimulate multitenant and build-to-suit developments in 1995."
Among the largest office projects on the horizon is the second phase of Corporex Cos.' RiverCenter office tower in Covington, Ky., directly across the Ohio River from downtown Cincinnati. Northern Kentucky office vacancy stands at about 13% overall. Other active Cincinnati developers are Duke Associates and Belvedere Corp.
According to Ostendorf-Morris, the absorption of more than 1 million sq. ft. of bulk industrial space in the first six months of 1994 was more than double the previous six-month period.
About 10% of the 3.2 million sq. ft. of bulk warehouse space in Northern Kentucky is available -- down from 25% two years ago.
That drove Miller-Valentine Group of Dayton in May to open what it called the first speculative building of any kind in Cincinnati since 1990 -- a $3 million, 110,000 sq. ft. bulk warehouse at the Northern Kentucky Business Center. The building fully leased up within a few months.
The lack of available space larger than 100,000 sq. ft. in Northern Kentucky means more than one large user has been lost, according to Stuart Walker of Ostendorf-Morris. He noted the largest new-to-Northern Kentucky lease tenants in the third quarter were Pfeiffer and World Color Press, each taking 20,000 sq. ft.
Among top recent leases, Dyment moved into a 300,000 sq. ft. facility in Circleport Industrial Park, German manufacturer Lemforder moved into its new 96,000 sq. ft. facility to kick off construction of the new 264-acre Airport Park and UPS moved into 19,000 sq. ft. in the Florence Industrial Park.
Levi Strauss is building a new 800,000 sq. ft. facility just west of the Cincinnati airport and A.G. Simpson will begin building a 250,000 sq. ft. building in Richwood Industrial Park, the first phase for a planned 800,000 sq. ft. complex.
Elsewhere in the market, Industrial Developments International Inc. later this year will launch construction of a 126,500 sq. ft. industrial building in Springdale's Northwest Business Center.
Multifamily vacancies rose slightly
Apartment vacancies rose slightly to just under 6% over the past year. A summertime survey by West Shell placed apartment vacancies lowest in the northeast (3.3%) and highest in the west (7.2%).
Great Traditions Land & Development Co. plans to build more than 400 upscale apartments, restaurants, stores, offices and a bike trail on a 200-acre tract in Warren County.
New developments in retail
In the retail sector, Kohl's Corp. recently announced it will build its fourth area store as 14-year-old Eastgate Mall's fourth anchor.
Besides Eastgate Mall, Kohl's is building in Union Township and Middletown. All three are to open late summer.
Office Max and Media Play entered the market. Two more Wal-Marts opened, boosting the Arkansas retailer to a seven-store presence in Greater Cincinnati.
The Kenwood Mall underwent a $17 million renovation and reopened as Sycamore Plaza in November. The 350,000 sq. ft. center featured mostly value-priced stores such as Toys 'R Us. Other stores opening next year at the center include Computer City and All About Sports.
The 231,000 sq. ft. Rookwood Pavillion retail center, which opened in late 1993, is nearly fully leased.
In November, Downtown Cincinnati Inc. (DCI) officials unveiled an aggressive campaign to boost the number of downtown stores to 131 from 96 in the blocks from Fountain Square north to Seventh Street and the upper Main Street area. Development efforts would center on Fourth and Race streets, as well as spruced-up blocks around the Aronoff Center for the Arts.
The retail highlight of the year had ramifications far outside Cincinnati as locally based Federated Department Stores maneuvered through a merger with R.H. Macy & Co. to create the world's largest department store chain.
Hotel market has not improved
Despite some encouraging upgrades, the hotel industry remained in a slump. The average occupancy rate for Cincinnati hotels is running about 61% -- below the industry break-even benchmark of 64%.
Warren County commissioners approved a final site for a six-story, 350-room hotel and conference center on Mason-Montgomery Road. The center, to open in mid-1996, is part of the development spurred by P&G's new health care research facility.
The city's largest hotel, the 887-room Clarion, came out of bankruptcy as it was renovated and re-opened as the Regal Cincinnati Hotel under new owners.