Mac Biggar, president of Hanna Commercial, said there were two camps at work in the office market. On the one hand, some companies know how they want their offices to operate in the future and will opt for longer-term contracts.
“They know if they want to go to permanent hybrid offices (which mix office and work-from-home demands) and their businesses will survive,” Biggar said. “There’s another group that will do short-term leases or sublet space while they make up their minds and want something to go to. Most people are looking to downsize the space they have.”
For years, newer, better designed and better located offices have continued to be occupied while the woes worsen for buildings over 30 years old.
“Consistently across all US markets, primarily as companies try to find a way to attract their employees to the office, we are seeing more and more companies turn to Class A (prime) properties and mixed-use environments,” said Michael Cantor, Managing Director. of Allegro Real Estate Brokers & Advisors of Cleveland.
While this bodes well for the upper end of the market, it is likely to worsen conditions in older buildings, especially downtown.
Another sign of increasing stability is found in tenants committing to the space for more time.
“At the start of the pandemic, there was a pretty significant rollback on lease terms and covenants. Now we’re going back to what we were seeing in 2019,” said JR Fairman, JLL’s senior vice president, as companies are reassessing how they work and how long they want staff members to be in the office. He said he’s seen tenants ranging in size from 2,500 to 160,000 square feet line up their offices with office workweeks of less than five days.
Russell Rogers, senior vice president of the Cleveland office of Colliers, said he was pleased with the volume of rental action so far this year among downtown Cleveland’s trophy buildings such as Key Tower and 200 Public Square. He said the market is more active than it has been since 2019.
However, Pietro predicts that “unless there’s something going on that I’m missing, it’s Armageddon for Class B offices downtown, and it’s not just Cleveland.”
Several experts say it’s good that downtown Cleveland has had so much experience converting old buildings into new apartments, especially when property developers can use historic tax credits to help raise income. capital for renovations.
Meanwhile, another factor is surfacing that could disrupt the office market.
“The cost of building materials and getting them there is just astronomical,” Davison said, so outfitting new offices will cost a lot more. It promises to spur pressure for smaller offices as a way to control rental costs that were growing in popularity before the pandemic.
Gino Faciana, co-CEO of business services provider Pleasant Valley Corp. of Medina, said at the start of the pandemic, many believed the private offices of the 1980s might return.
“I don’t think it’s possible,” he said, given the escalating cost concerns.
Michelle Jarboe contributed to this report.