The cities of Cleveland and Columbus couldn't be more different. Cleveland, bounded to the north by Lake Erie, has a rough, industrial background - a blue-collar city consisting of both the industrialists who built the manufacturing base and the immigrants who worked it. Columbus, surrounded by farmland, quietly has become Ohio's largest city on the strength of services and entrepreneurship. It's a young town - one of the few major cities in the northeastern United States with a growing population - and has an unemployment rate of about 3%.
But one thing is similar about these two cities, located only 120 miles apart: Sensible development in the late '80s and early90s has created healthy commercial real estate markets in the mid-'90s.
"Most of our markets are doing exceptionally well," says Adam Fishman, managing principal for Cleveland Real Estate Partners, a corporate real estate consulting firm that is most active in the north coast city's office market.
Cleveland has seen a boom of public projects in and around the central business district that has helped transform the city from stodgy grayness into a destination point: Jacobs Field, home of the Indians; the Gund Arena for indoor events; the Rock `n' Roll Hall of Fame; and new Science Museum, among others.
Columbus, which grew its downtown in the '80s thanks in part to public projects, including three large state office towers, has taken advantage of its location and some creative development to become a distribution hub. The city is located within a one-day drive of about half the nation's population.
In addition, the growing population, which has spread into and beyond the traditional suburbs like wildfire, has led to a retail boom, with millions of square feet of new retail space developed in the past two years. At the same time, office space in Columbus is among the tightest in the nation.
"The fortunate thing about Columbus is that we have the developers with the foresight to see the need, but also with enough restraint not to overbuild the market," says Michael E. Young, executive vice president of Pizzuti Realty Inc., a Columbus-based real estate development and management company.
Cleveland may have been built on manufacturing, but Columbus has been at the forefront of the industrial real estate market in recent years because of the city's position in distribution. With such home-grown retail giants as The Limited, Value City Department Stores and Consolidated Stores leading the way, central Ohio has become something of a mecca for distributors, especially retailers.
Add Spiegel to that list. Although based in Chicago, the retailer has made central Ohio its distribution hub. First, Spiegel completed a 2.1 million sq. ft. catalog fulfillment and distribution facility at Rickenbacker Air Industrial Park, south of the city. Then the company paid $20 million to buy the 25-year-old, 4 million sq. ft. former Sears distribution center on the West Side for its national retail store distribution center.
Throughout central Ohio, industrial activity "remains very strong," says Ron Smith, senior vice president with CB Commercial's Columbus office. At the midway point of 1995, the vacancy rate stood at 6.3% for the 128.5 million sq. ft. of industrial space in excess of 10,000 sq. ft. tracked by the company.
The rate is better than the national average, but it is up from the 5.1% rate at year-end 1994, due mostly to "all the new product" that has hit the market during the past year, Smith says. And Pizzuti's Young notes that leasing activity, which was slow during the spring, has picked up.
Leasing rates are going up, too. Young says that deals asking $3.20 per sq. ft. net at Rickenbacker at the beginning of the year have now moved to between $3.25 and $3.35, while rental rates in the Grove City area up from $2.90 per sq. ft. net to $3. Overall, bulk warehouse rents range from $2.50 up to about $3.50.
Central Ohio saw 3.1 million sq. ft. of industrial construction last year. But buildings under construction this year already had reached nearly 3.5 million sq. ft. through the second quarter, most of it clustered in the tax-abated areas of Grove City, a southwest suburb, and Rickenbacker, a foreign trade zone.
While some of the industrial space being built is build-to-suit, such as Consolidated Stores' $26 million, 835,000 sq. ft. expansion at its west side distribution center, much of the new space is spec.
Pizzuti continues to develop its SouthPark industrial park in Grove City, having added a 290,000 sq. ft. spec building that since has been leased to outdoors retailer Timberland. The developer recently finished two 150,000 sq. ft. spec buildings at the park and was expected to begin construction this fall on its seventh and largest spec warehouse there, a $7 million, 400,000 sq. ft. building.
Within a stone's throw of SouthPark, Indianapolis-based Duke Realty completed the first spec warehouse at its Southpointe industrial park. The $9 million, 300,000 sq. ft. building is now 70% leased, and a second, $9.1 million, 307,000 sq. ft., building is under construction.
Also in Grove City, Security Capital Industrial Trust, of Denver, is completing an $8 million, 309,467 sq. ft. spec building at its Capital Park South development, where appliance manufacturer Amana agreed to lease an $8 million, 305,000 sq. ft. warehouse. Plans also were announced for a third warehouse, a 250,000 sq. ft. spec facility. And in nearby Urbancrest, National Realty Services Inc. is launching yet another industrial park.
The Spiegel center helped Franklin County-owned Rickenbacker grow into a thriving industrial center. This year, Sun Television & Appliances opened its 830,000 sq. ft. warehouse facility there, while Pizzuti began leasing a 205,000 sq. ft. spec facility completed earlier this year at the park and will begin construction this fall on another, 305,000 sq. ft. spec building there. Meanwhile, Carey Leggett Realty Advisors, Columbus, wants to develop a $4.5 million, 150,000 sq. ft. warehouse at the park to house companies serving Spiegel.
All the new development has pushed land prices ahead. At the end of 1994, industrial land sales were averaging $30,168 per acre, ranging from $25,090 in the southeast quadrant of Franklin County to $45,751 in the northeast.
While construction is on a record path, it will be difficult for central Ohio industrial sales to match 1994 - especially last year's fourth quarter, when more than 6 million sq. ft. was sold to investors for more than $160 million. The average sale price rose to $23.21 per sq. ft. in 1994 from $21.38 per sq. ft. in '93.
By far, the biggest sale in the past year was to SFERS Real Estate, a San Francisco teachers pension fund, which acquired more than a dozen warehouse buildings, totaling nearly 1.9 million sq. ft., off the I-270 outerbelt west of Columbus from LaSalle Partners for $60.3 million - a whopping $31.82 per sq. ft.
The vacancy rate for industrial space in Cleveland is higher than Columbus, but there has been a demand for new product, much of it taking the form of build-to-suit development. There has been little spec warehouse space built in the Cleveland area, "basically because of the difficulties of financing," says Thomas Schock, vice president of development for Geis Construction Co., a Twinsburg, Ohio-based builder and developer of industrial parks.
A survey of the Cleveland industrial market by real estate firm Grubb & Ellis put the vacancy rate for the 88.4 million sq. ft. that it tracks in buildings over 10,000 sq. ft. at 12.21% at the end of the second quarter, slightly improved from the 12.45% at year-end 1994.
"The biggest problem is that there's not much of the good space available," says Alec Pacella, research director with Grubb & Ellis, Cleveland. "As a result, there's been a ton of build-to-suits, and land prices have ratcheted up, probably 15%."
James Wolf, president of CRESCO, a Cleveland area industrial real estate specialist firm, notes that property in industrial parks south of Cleveland that went for $30,000 per acre to $40,000 per acre a couple years ago are "$55,000, pretty much standard." And space at the 250-acre Airport Industrial Park being developed by the city near Cleveland Hopkins International Airport, could go for as much as $60,000 to $70,000, including assessment, he says.
Columbus and Cleveland have at least one thing in common in the office real estate market: Any company looking for large chunks of available contiguous space in suburban Class-A buildings is going to have a difficult time. In Columbus, the same is true for downtown office space.
SIOR's annual year-end survey found Columbus has the lowest office vacancy rate, 3.1% of 17 million sq. ft. tracked, among 110 American cities. While similar studies by local real estate companies found the rate to be above that, most observers agree the Columbus market is tight.
The situation remains basically unchanged this year, says Michael J. Irwin, vice president in the Columbus office of The Galbreath Co., the national real-estate management company. "There's still a low vacancy rate," he says, "and there are not a lot of large chunks of contiguous space out there."
Statistics from CB Commercial show a 6.57% vacancy rate for the 7 million sq. ft. of office space in downtown Columbus, down from 7.45% at the end of last year. Meanwhile, while the rate for the 9.3 million sq. ft. suburban market slipped to 8.12% from 9.58%. Class-A vacancies as of June 30 were 4.46% downtown and 6.81% in the suburbs.
Cleveland had significantly higher numbers, due to several major downtown office towers which came online earlier in the decade. Still, the vacancy rates were improving slightly, with the total 33.7 million sq. ft. market's vacancies declining to 18.09% at the end of the second quarter from 18.52% at year-end 1994, according to a quarterly analysis by Grubb & Ellis.
The strongest and most-improved Cleveland-area market has been the south, including Rockside Road, where the vacancy rate for the 3.3 million sq. ft. of office space there has declined to 6.32% from 10.4%. "The south suburbs have rebounded in fine fashion during the last 18 months," says Christopher J. Livingston, vice president in Galbreath's Cleveland office.
Overall, the suburbs' 12.8 million sq. ft. of space has a 12.18% vacancy rate, improved from 12.62% at the end of 1994. Meanwhile, the vacancy rate slipped slightly to 21.7 1 % for the 20.9 million sq. ft. of downtown office space, although the rate along Euclid Avenue, including a number of older, obsolete buildings, was a staggering 36%, according to a 1995 office market survey by Victor S. Voinovich Co., Cleveland.
Low vacancy rates plus a demand for space, especially by growing companies already in central Ohio, have propelled a mini-boom for office development in Columbus, especially outside the central business district.
A good portion of the development is due to the continuing growth of Banc One, the Columbus-based super-regional banking giant. The bank's biggest ongoing project - and the biggest office development in central Ohio in years - is at the Polaris Centers of Commerce on Columbus' far north side, where Banc One is building a $123 million, 1.6 million sq. ft. office complex on a 160-acre site that cost $8.17 million, or more than $51,000 an acre. The first phase, encompassing 800,000 sq. ft., is expected to be completed next summer.
Busch Properties, a subsidiary of St. Louis-based Anheuser-Busch Co., has not been the only entity doing spec construction in the Columbus area. Duke Realty, the major developer of office space at Corporate Park at Tuttle Crossing in northwest suburban Dublin, built its first fully speculative building this year, a four-story, 130,000 sq. ft. facility that was leased to Cardinal Health Inc. shortly after it came out of the ground.
The development of mid-sized spec buildings is just a sign of the times in terms of the business world, says Donald Hunter, vice president and general manager in Columbus for Duke. "Real estate decision makers must do more with less, so they have to be quicker and smarter," he says.
Construction has begun at Polaris on a $24 million, 26-acre office park by developer The Daimler Group in conjunction with Polaris developer NP Limited Partnership and Ohio Equities Inc., a fullservice real estate firm. The four spec buildings that will make up The Offices at Polaris will have 290,000 sq. ft.
The biggest build-to-suit office project after Banc One's large complex at Polaris is by CompuServe. The nation's largest online computer company will be moving this year into a newly constructed, six-story, 225,000 sq. ft. structure, which is the first phase of its projected 650,000 sq. ft. headquarters complex.
The only downtown office project being proposed is a spec building. Arshot Investments Corp. wants to begin construction next spring on a $25 million, 20-story tower that would connect and expand the 16-story Fifth Third Center the developer rebuilt several years ago. The 180,000 sq. ft. new building would be the first new, private office building in downtown Columbus in a decade.
The building could be larger, but Arshot does not want to add too much space to the stable downtown office market, according to William Schottenstein, an Arshot principal. He likened the market's depth to trying to ice skate in central Ohio in winter: "The pond's frozen on top, but the ice doesn't go down far."
Rents have an effective average of $18 per sq. ft. for Class-a downtown and range from $15.75 per sq. ft. to $17 per sq. ft. for both downtown Class-A and new sub, urban space, according to Kohr Royer Griffith Inc./New America Network. Numbers from Pizzuti indicate that the leasing rates for Class-A space in the suburbs has grown from $8.10 per sq. ft. triple net in 1992 to $10.30 per sq. ft. last year and $10.80 per sq. ft. this year.
In addition, most office real estate experts say the incentives that were offered by landlords in order to fill space a few years ago are all but gone. The biggest office building sale in central Ohio so far this year was Minshall Trust's $11 million purchase from Connecticut Mutual Insurance Co. of Cascades Centers 1-5 in Worthington, totaling 220,000 sq. ft.
There is little spec office construction in Cleveland, so, as with the industrial market, most new development has taken the form of build-to-suits. Among the bigger projects this year has been the 440,000 sq. ft. Allen-Bradley headquarters at Landerhaven Office Park in east suburban Mayfield Heights, where Parker Hannifin Corp. will build a 125,000 sq. ft. office building and move from its old headquarters in Cleveland.
According to Voinovich, rental rates began to firm in Cleveland as 1994 ended, standing at an average of $21 per sq. ft. downtown and $16.75 per sq. ft. in the suburbs.
"The office market was overbuilt for many years, but the Rockside and I-77 corridor and some other areas have been doing very well," says Richard Racek, a partner with Calabrese, Racek & Markos, a real estate appraisal and consulting firm.
But with downsizing continuing by many traditional downtown tenants, there may not be much additional push to boost rates. For instance, staff cuts by BP America will free up about six floors in the 45-story BP America Building. LTV is expected to fill that 230,000 sq. ft. of space in the BP building, but that would leave 300,000 sq. ft. of space vacant in the older Landmark Office Towers.
The purchase by Los Angeles-based CB Commercial Realty Advisors of Commerce Park IV and V office buildings in Beachwood was the first purchase of a Cleveland-area building by an institutional group in about a decade. The buildings, totalling 230,000 sq. ft. and 80% leased, sold for $14.3 million, or $62 per sq. ft.
Columbus and Cleveland both have taken advantage of the influx of big box retailers to fuel new and expanded development during the past year. Both areas have seen 1 million sq. ft. of new retail centers and stores developed in the past year. Each of the areas also has its own major mall projects.
In Columbus, they are the Mall at Tuttle Crossing, a 980,000 sq. ft. center being developed by The Limited and Bloomfield Hills, Mich.-based developer The Taubman Cos., and Columbus Mills, a $100 million, 1.5 million sq. ft. mega outlet mall proposed for Polaris by Washington-based Mills Corp. One big project in Cleveland is an 800,000 sq. ft. mall proposed for Kent by Youngstown's DeBartolo Realty.
Another big project in Cleveland is the $220 million, 1.2 million sq. ft. Southpark Center being build, in Strongsville, by Westlake, Ohio's Richard E. Jacobs Group. Southpark Center is a regional mall located on a 163-acre site just west of Interstate 71. The two level, 1.2 million sq. ft. mall has about 130 specialty shops, a food court and major department stores like Dillard's, JCPenney, Kaufmann's and Sears. The Richard E. Jacobs Group owns and operates 38 malls nationwide with 10 malls in Ohio.
Suburban Cleveland also will see a major mall expansion at the upscale Beachwood Place in Beachwood. The Rouse Co., of Columbia, Md., plans to double the size of the center to 700,000 sq. ft. and add Ohio's first Nordstrom.
But the malls are only a small part of the overall retail environment in the two cities, because both have seen the strong growth of power centers. Around Cleveland, centers going up include the 328,000 sq. ft. Diamond Center in Mentor and the 300,000 sq. ft. Greens of Strongsville being developed by Beachwood's Wald & Fisher.
Meanwhile, Columbus has a slew of 300,000-plus sq. ft. centers either opened in the past year or under construction. "We haven't heard of any city as active in strip centers as this one," notes John Meyer, an official with Continental Real Estate Cos., a real estate development and management company.
The Sun Center, being developed by the Continental-Casto team along the northwest Columbus shopping mecca of Sawmill Road, will include numerous big boxes, totaling 600,000 sq. ft. under roof when it is completed next year.
Also on Sawmill Road, Miami-based United Trust Fund Limited Partnership has completed one of three recent Ohio sale/leasebacks with Sun Television. The 60,000 sq. ft. store is situated on approximately five acres and was completed around 10 months ago. The absolute net 15 year lease began in October.
"Historically we've bought in Ohio," says Fred Berliner, director of acquisitions at United Trust Fund Limited Partnership. "We've always liked the stability of that marketplace." Berliner says Ohio doesn't experience the same boom or bust as other places, but it's Ohio's stability which makes it attractive. "We've always had a lot of confidence in Ohio."
Still, all the new development "really hasn't had much impact on existing multitenant retail facilities," says Bob Matias, an associate with CB Commercial in Columbus. Of the 19.2 million sq. ft. of retail space tracked by CB, about 9% is vacant, down from the 9.76% at the end of 1994 and the lowest rate since CB Commercial began keeping the statistic six years ago. Average net leases are $9.10 per sq. ft. at strip centers and $9.36 per sq. ft. at community centers.
"Even the smaller centers seem to be very healthy," says Mark Unger, director of retail leasing for Plaza Properties, a Columbus retail and apartment development and management company. "Demand for store rooms are going up, and so are rents."
Meanwhile, Kohr Royer Griffith reports that retail space in the Cleveland area has been improving and was between 9.3% for regional malls and 13% for community power centers last year, despite the addition of just about 1 million sq. ft. of new retail space.
Cleveland has seen a number of apartment projects go forward downtown, but development still is slow in the suburbs, where community groups have been active.
In Columbus, most of the growth continues in the suburbs.
According to the Columbus consulting and research firm The Danter Co., central Ohio continues to add about 3,200 apartments per year, but the vacancy rate still slipped to 5.4% in the first quarter from more than 6% at the end of 1994. Meanwhile, the Cleveland area has been adding less than 1,000, with the vacancy rate sliding to 3.1%.
The biggest of the downtown Cleveland projects is Crittenden Court, a 17-story building with 220 units that is the first new downtown apartment building in 20 years. The structure is slated to open in December with monthly rents from $500 to $1,000.
According to Danter, Cleveland's median rent for a one-bedroom apartment is $448, the highest among the state's big cities. In Columbus, the medium is $392, although the cities are both around $495 for two-bedroom units.
"Rental rates in Columbus are inching up, but not much," notes Ed Joseph, an associate at CB Commercial.
Apartment sales have been slow in central Ohio. The only two sales in excess of 100 units were by Associated Estates, a Cleveland-area real estate investment trust.
Better occupancy rates and daily rates for hotels and motels in the Cleveland and Columbus areas has led to additional hospitality development.
Improved night life in downtown Cleveland, including the success of the Indians baseball team, helped innkeepers in the central city boost their occupancy rates to 68% last year from 61% in '93, while daily charges rose to $91 from $87.
"The market was flat for a long time, but recently there has been a tremendous amount of growth," says Susan Orinsby, president of Chagrin Falls-based Orinsby & Licciardi Co., a hospitality consulting company.
The total Cleveland metro market has shown similar growth, according to Orinsby. The market's occupancy rate rose to 71.4% last year from 66.2%, while the daily rates grew to $75.80 from $71.50.
The occupancy rates could drop a bit this year due to the addition of a halfdozen new hotels this year, Orinsby says, but "demand is expected to grow 4% to 5% per year."
There are a lot of hotel plans in Columbus, but little movement, and that's probably fine with owners who have seen occupancy grow to 65.66% of all rooms during 1994 from 62.91% in 1993, while the daily rate rose to a record $55.21 from $52.91 the year before.
Developers had hoped to break ground this spring on three hotels with 400 rooms at a site near Port Columbus International Airport. However, no construction has begun, and one of the three could move closer to the airport to a site acquired by Donald R. Kenney, who also owns Triangle Real Estate.