the Central Business District (CBD) posted a slight positive net absorption totaling approximately 4,500 SF. Leasing activity has continued to increase steadily after plunging during the second quarter of 2020 and this quarter was no exception.
Net absorption during the fourth quarter of 2021
Net absorption during the fourth quarter of 2021 totaled 159,047 square feet, up from the previous quarter which recorded 14,000 square feet. Since the start of the pandemic, this is the first time there have been consecutive quarters that recorded positive net absorption. Despise the large absorption difference, which mainly comes from the new supply, the vacancy rate has remained the same at 13.6%. Due to the new COVID-19 variant, employers have continued to postpone return to office plans.
Sublease availability was virtually unchanged and, unlike many other markets across the country, has not been much of a factor in the Cleveland area. Available sublease space initially jumped by 100,000 square feet at the beginning of the pandemic but has remained fairly
flat since then and totals only 472,050 square feet now, approximately 0.9% of available inventory.
Overall market availability has surged since the pandemic-induced lockdowns during the spring of 2020. While sublease availability has remained relatively flat, direct available space has increased from 14.9% in Q4 2020 to its current reading of 16.2%. The current spread
of 260 bps between direct available and direct vacant space indicates that much of this space is still occupied and many companies continue to weigh their options in the face of an uncertain future.
Construction activity Cleveland office market
Construction activity has increased in the Cleveland office market, including a new tower that broke ground this quarter in the Central Business District (CBD). Sherwin Williams is getting a new downtown headquarters that has begun construction and will be 1M square feet right in
the heart of the CBD. Along with their new tower, Sherwin Williams is also building a new R&D facility in Brecksville, OH that broke ground in October and will total 600,000 square feet. Bendix CVS opened their new headquarters in Avon, OH, delivering 133,500 square feet. Projects for the Cleveland Foundation, CBIZ, Cross Country Mortgage and Culture 33 are all currently under construction and set to open during 2022 totaling over 500,500 square feet.
The overall market asking rental rate, averaging $18.08 per square foot (full service/gross), has decreased 0.5%, year-over-year. Overall market Class A asking rents average $21.72 per square foot, a decrease of 2.7%, year-over-year. Central Business District Class A asking rents decreased over the past 12 months by 0.6% to $22.67 per square foot, while suburban Class A rents decreased 2.83% to $20.24 per square foot. Though demand for office space has not returned to its pre-pandemic levels, landlords have continued to hold firm with asking rates in order to maintain value, but have been offering additional concessions, such as increased tenant improvement allowances and rent abatement.
Vacancy/Absorption
Since the start of the pandemic(COVID-19), the Cleveland office market has recorded two consecutive quarters of positive absorption. This quarters’ positive gain in absorption of 159,047 square feet. It shows the market is recovering from the fallouts of the pandemic and is optimistic going into 2022. Total net absorption, year-to-date, is still negative at -69,962 square feet. As the pandemic continues to change with the mutation of the Omicron-variant, occupiers’ return-to-office strategies remain unknown. Leasing activity is expected to increase as the local economy continues to recover.
Rental Rates
Overall market asking rental rates for the quarter have decreased to an average of $18.08 per square foot (full service/gross), down 0.5%, year-over-year. Overall market Class A asking rents have decreased by 2.7% over the past 12 months to an average of $21.72 per square foot. Central Business District Class A asking rents decreased to $22.67 per square foot, a 0.6% decrease, year-over-year, while suburban class A dropped 2.83% to $20.24 per square foot. In the face of reduced demand, landlords are attempting to maintain rates and value by increasing concessions
offered to occupiers.
Leasing Activity
Since bottoming at the height of the COVID-induced business lockdowns during the spring of 2020. Leasing activity has slowly rebounded, increasing each quarter since the lifting of restrictions. Volume during Q4 2021 surpassed 350,000 square feet. At the current pace, the annual total will be nearly 31% below the market’s pre-pandemic historical average. On a positive note, the average transaction size has returned to its historical norm. It is indicating that mid-size and large occupiers have resumed searches for space in the market.
Employment
Employment in the Cleveland metropolitan area has continued to improve. As of November, the unemployment rate measured 3.7% after peaking last April at nearly 22% based on revised U.S. Bureau of Labor Statistics data. The primary office-using sectors, such as Financial Activities and Business and Professional Services, have made a significant recovery. Around half of the jobs lost during the pandemic regained. This brings current employment levels in these sectors back to 2017 levels. Although, job openings remain at historic highs, employers are having difficulty filling open positions due to any number of factors. One factor of note, however, is the plummeting labor participation rate, which is now at a 30-year low.
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