Office pulse

A slow economy can make for a stagnant office market as businesses close, pull out of Northeast Ohio or limit their real estate spending.

But one company’s loss is another’s gain. With vacancy rates hovering around 20 percent for the past two years, some businesses have found opportunities to upgrade to a better address, negotiate cheaper renewal rates or get better concessions from landlords.

“The downtown market and Rockside Road are in stagnant positions,” says Todd Gabriel, senior vice president of Grubb & Ellis, a commercial real estate advisory firm. “We don’t see any true signs that the vacancy rates in those markets are going down quite yet.”

The Rockside Road area has an office vacancy rate of 24 percent, while downtown Cleveland has a total vacancy rate of 22 percent. But that number is somewhat deceptive, Gabriel says.

“The downtown Class A market, which is buildings like Key Tower, BP and North Point Tower — now the 5/3 Center, that market is still relatively healthy at about 14 percent,” says Gabriel. “The market that is really stagnating is the Class B market –East Ohio Gas Building, the Diamond Building and the Tower at Erieview. What we have seen downtown is that as big blocks of office space open up and vacancy rates climb higher, the Class A spaces lower their rates to compete with Class B.

“A lot of companies are making the jump from B to A because the differences in rent are not as significant as they were five to 10 years ago. That’s why we have a glut of Class B space. People are able to justify the jump in price to get a much higher quality space.”

Class C space has vacancy rates in the 28 percent to 29 percent range and has suffered as much as Class B buildings from space jumpers.

“In some cases, the buildings are functionally obsolete,” says Gabriel. “In some cases, tenants from Class C have jumped to an A or B space. The price can be justified for moving to a new building. Just like if someone offers a Cadillac for $1,000 more than a Chevy, most people would prefer the Caddy. People in the office market are doing the same thing.”

Gabriel says new construction downtown is a long way off. With the current vacancy rates, a new building isn’t cost-justified.

“The rents they’re getting right now wouldn’t support it,” he says.

New construction in the suburbs isn’t booming, but there is some activity. The south market has the Heritage Corporate Center, with Family Heritage Life Insurance occupying about half of the 60,000 square feet available. On the west side, Crocker Park will have up to 250,000 square feet when complete, while the east side market has a new 75,000-plus square-foot development that is already 50 percent leased.

Even with the construction, there are areas like Rockside that have plenty of options available.

“I did a survey for someone that needed 10,000 square feet on Rockside Road, and they had 16 choices,” says Gabriel. “In that market, it is almost like which building you can’t have instead of which you can. Five years ago, they would have had five choices, maybe.”

Landlord concessions are still very much a factor in the market.

“The typical concessions you receive are free rent and above-standard tenant improvement allowances,” says Gabriel. “If you wanted to move, you can get a competitive rate, free rent for a set period, and the landlord will spend a significant amount to build out the space.” How to reach: Grubb & Ellis, (216) 861-3040 or

Homegrown in Akron

The Akron office market can be completely different than its bigger neighbor to the north, even where the two rub shoulders.

“Suburban Akron is almost a separate market,” says Todd Gabriel, senior vice president of Grubb & Ellis. “I won’t say it’s bulletproof, but it doesn’t have nearly the peaks or valleys that just going 20 minutes north to the Rockside Road area would have. In areas like Fairlawn and Copley, vacancy rates are at about 12 percent.”

New construction is limited and big blocks of space do not sit on the market for very long.

Gabriel says that for the most part, Akron office space is occupied by companies that are growing from their Akron base, as opposed to new companies moving to the area.

“It’s the people that are already there that are growing,” which is certainly a good sign for the Northeast Ohio economy, says Gabriel.

Similar trends are flowing into Cleveland’s eastern market.

“One thing worth noting is that the eastern market of Cleveland has a vacancy rate of 17 percent, and that’s been coming down,” says Gabriel. “Most of the companies in the eastern markets are local companies. It’s a positive sign that if the space is getting absorbed, local businesses are growing.”