Ohio Valley

2021 – Q4 Market Report

Market Overview

The Cincinnati metropolitan area includes parts of southwest Ohio, southeast Indiana, and Northern Kentucky. This region is known for its tourism, agriculture, manufacturing, and healthcare industries.

Cincinnati is Ohio’s largest metropolitan area with a population of over 2.2 million, represented by seventeen counties; four in Indiana and eight in Northern Kentucky. This report omits Franklin County, Indiana, northwest of Cincinnati, and Clinton County, Ohio, east of Warren. The area is also listed among the top five fastest growing cities in the Midwest.

Cincinnati is home to three major sports teams and the University of Cincinnati, Xavier University and Northern Kentucky University. The city has several significant companies headquartered there, such as Proctor & Gamble (10,000) and Kroger (21,263), which is the largest employer in the city. Other major employers include: General Electric (10,500), University of Cincinnati (10,551), and Fifth Third Bank (7,496). The most recent addition is the Amazon Air Hub at Cincinnati/Northern Kentucky International Airport (CVG) located in Hebron Kentucky. Cincinnati also has 63,376 healthcare workers across six health networks, including Cincinnati Children’s Hospital which ranks as the third best children’s hospital by U.S. News & World Report 2019-20. According to REDI Cincinnati, the city also has more Fortune 500 companies per capita than New York, Los Angeles or Chicago and boasts the lowest business operating costs among US metro areas.

The city made it to the top 10 category of The New York Times list of 52 Best Places to Go. This list considers destinations around the world, making it a prestigious list to be a part of. The city has a host of amenities, including five entertainment districts. These districts include: Over-the-Rhine, The Banks Entertainment District, Fountain Square, Arts & Backstage District, and JACK Casino. Multiple award-winning hotels. The 21c Museum Hotel was listed as the #1 Hotel in America in Condé Nast Traveler’s “Reader’s Choice Awards” and The Cincinnatian Hotel was ranked as Travel + Leisure’s World’s Best Business Hotel with a AAA 4 diamond rating (Cincinnati USA). The city’s 5,000 acres of parkland and 16 scenic overlooks add to its enchantment along with its hiking and bridle trails comprising 65 miles (Cincinnati USA). Cincinnati is also home to multiple museums, including the Cincinnati Museum Center at Union Terminal. The Center houses the Cincinnati History Museum, Museum of Natural History & Science, Due Energy Children’s Museum, Robert D. Lindner Family OMNIMAX Theater, and Nancy and David Wolf Holocaust and Humanity Center.

Cincinnati lost close to 180,000 jobs at the beginning of the pandemic which were primarily within the leisure and hospitality sector. While job growth improved throughout 2021, by Q4 the Cincinnati Metro had the lowest unemployment rate it’s reached in 30 years at 2.8%. The U.S. unemployment rate was 3.9% in December.

Population

2,254,459

Households

882,335

Median Household Income

$66,754

Education

29% Highschool
27% Some College
35% Bach/Grad+

Total Businesses

71,094

Total Employees

1,139,411

Source: Esri

Industrial OVerview

CINCINNATI RANKS AT THE TOP OF THE LIST FOR BUYING INDUSTRIAL REAL ESTATE IN 2022

The Cincinnati MSA is a prime location for warehouse and distribution, due to the DHL Superhub and the Amazon Air Hub facilities that opened in Q3 2021 at Cincinnati/Northern Kentucky International Airport (CVG). Since the Amazon Air Hub was announced in 2019, millions of square feet of industrial space has come on the market, with more in the works.

The robust industrial market activity is attracting investors as well as developers. The Urban Land Institute (ULI) ranked the Cincinnati market as no. 1 for buying industrial real estate in 2022. The market absorbed over 3.2 million square feet in Q3 2021, the second highest net absorption in the past ten years, exceeded only by Q1 2021, with more than 3.4 million.¹

Vacancy across all product types and classes for the market as a whole was 4.6% in Q4 and projected to fall to 3% by the end of 2022. Class A had a vacancy of 12.4% in Q4, largely due to the number of deliveries in Q3 and Q4, totaling over 2.4 million square feet. Net absorption was 1.7 million square feet. Market rents have been steadily climbing, ending at $5.28 in Q4. Sales for Class A were $166 million.¹

Class B had a vacancy rate of 4% and market rents at $5.70. Net absorption was 1.44 million the highest in ten years. Sales were nearly $135 million – also the highest in the past ten years, beating the next highest, Q3 2019 by $37 million.¹

Class C had the lowest vacancy at 2.3% and market rents at $5.79. Net absorption was also positive for Class C at 124,529 square feet. Sales were $88 million in Q4, increasing from $74 million in Q3.¹

Notable Transactions

EQT Exeter completed a 328-building portfolio sale worth $6.8 billion, one of the largest ever in the United States.² Ten of the properties were in the Cincinnati market and total over 1.2 million square feet and accounted for over $87 million of that transaction.

Forecast

  • Cincinnati continues to see high demand for industrial product.

  • Properties in Northern Kentucky close to the Cincinnati / Northern Kentucky International Airport (CVG) with the DHL Superhub and Amazon Air Hub will remain in high demand, both for tenants and investors.

  • Developers will continue to build spec buildings throughout the market, with Northern Kentucky remaining a focus with e-commerce driving demand.

  • Net absorption is forecast to remain positive through 2022 and market rents will continue to rise.

CINCINNATI METRO INDUSTRIAL ASKING RENT & VACANCY

Source: REIS

CINCINNATI METRO INDUSTRIAL ABSORPTION TRENDS

Source: REIS

CINCINNATI METRO INDUSTRIAL TRANSACTION VOLUME

Source: REIS

Office Overview

VACANCY IS FINALLY STARTING TO LEVEL OFF, PERHAPS SIGNALING THAT THE OFFICE MARKET IS FINALLY STARTING TO TURN AROUND

Office continues to struggle amid the pandemic with return to office plans complicated by the Omicron variant. Vacancies in the metro continued to increase throughout 2021 but remained steady in Q3 and Q4 ending at 10.6% according to CoStar data, however, vacancy is likely closer to 15%. Market rents continued to slightly increase to $19.86 at quarter end. Sales volume was just over $100 million. And total sales volume for all of 2021 was nearly $424 million; topping 2020’s volume by $80 million.¹

Blue Ash is attracting buyers and businesses. The Hawthorne Center at 10151 Carver Road sold in Q4 for $26.5 million. The five-story class A office building with 135,400 square feet is the HQ for Belcan, one of the metro’s largest private employers.² One Kenwood Place, 9825 Kenwood Road also sold. The three-story, 78,000 square-foot building’s sale price was $6.2 million. Sugarcreek Packing is investing up to $12 million to build a five-building corporate headquarters campus at Indeco Drive.³ The project also includes an event center. The Blue Ash submarket vacancy was 21.7% and market rents were just under $21 per square foot in Q4

The Central Business District has had it’s share of ups and downs during the pandemic, but is showing some signs of recovery with new projects attracting new tenants to the CBD. Vacancy was 9.7% at the end of Q4. The vacancy rate dropped to 8.9% in Q3 and is forecast remain steady at just under 10% throughout 2022. After positive net absorption in Q3 2021, it was once again negative in Q4. Class A vacancy in the CBD is higher at 13.9% and increase of 12% from Q3. Market rents continue to steadily increase are currently hovering around $24 per square foot. Class B office fared better with falling vacancy from over 10% in Q2 and ending at 7.5% with positive net absorption in Q3 and Q4 totaling 53,537 square feet. Market rents have mostly remained steady around $18 per square foot.¹

The former Macy’s HQ at 7 West 7th Street has had a large vacancy since Macy’s left in 2020. A developer has plans to convert the upper floors, starting on the eighth to 338 residential units, pending city approval. In Q4 Divisions Maintenance Group (DMG) announced it was moving its HQ from Newport KY to downtown Cincinnati, adding 256 jobs and leasing 83,000 square feet in The Foundry at 505 Vine Street, which was a former Macy’s. The property has 150,000 square feet of office and 35,000 square feet of retail. Nearly all the office has been leased with just around 20,000 square feet left available.

There are a few new office properties under construction in the metro, but the largest is Terrex Development & Construction’s second office building at Digital Futures Complex in Uptown. The first phase of the development included a 90,000 square-foot office building that is fully leased to the University of Cincinnati. The second office building is 180,000 square feet and is being marketed to companies that want to locate near UC and other Uptown institutions as part of the Cincinnati Innovation District.⁴

Forecast

  • The office market suffered a setback with the Omicron variant complicating office plans, but the region is slowly starting to improve.

  • The unemployment rate is lower than pre-pandemic levels and is the lowest it’s been in 30 years, at 2.8%, showing the resiliency of the market.
  • Class A vacancy in the CBD is forecast to remain steady after climbing throughout 2021.
  • Market rents continue to slowly rise.

CINCINNATI METRO OFFICE ASKING RENT & VACANCY

Source: REIS

CINCINNATI METRO OFFICE ABSORPTION TRENDS

Source: REIS

CINCINNATI METRO OFFICE TRANSACTION VOLUME ($)

Source: REIS

Retail Overview

RETAIL RECOVERY CONTINUES, BUT INFLATION, SUPPLY ISSUES, AND LABOR SHORTAGES MAY IMPACT SOME RETAILERS

Average market rents for all retail property types were relatively flat throughout 2020 hovering around $13.30, but have been steadily climbing in 2021 and ending Q4 at $14.31 per square foot. Vacancy had continued to rise until Q2 2021 when it reached 6.8% then fell through Q3 and Q4 to 6.3%. Looking at shopping centers only, the vacancy was higher at 11% but also declining from the high of 11.4%.¹ Declining vacancy perhaps indicates that the Cincinnati retail market is back on track, so long as the recovery isn’t hindered by another wave of closures related to supply issues, worker shortages, and inflation. Some sectors will remain strong, such as grocery, but traditional retailers and restaurants are fighting for workers to keep full hours and operations.

Class A properties also saw rising rents and falling vacancy along with positive net absorption. The average markets rent was $17.68 and vacancy at 5.9%. Net absorption was slightly negative in Q3 and Q4, but forecast to increase in 2022.¹

Class B and C malls continue to struggle. Moody’s Analytics estimates some 20% of approximately 1,000 malls in the U.S. today will be sold or re-purposed in some way.² The Cincinnati metro has six super regional mall properties with a combined vacancy of just under 40%. Many of the malls have lost anchors in recent years and have struggled to fill those spaces, making some of the malls ripe for redevelopment. Two developers out of Texas are planning to redevelop the Tri-County Mall in Springdale. The 1.3 million square-foot mall is just 18% occupied, having lost all its anchors, the final one, Macy’s in 2021. MarketSpace Capital and Park Harbor Capital are buying the mall for $29 million. Their plan includes 2,300 apartments, along with other uses such as retail, restaurants, recreation and education facilities, civic space, and science and medical space.³ The recreation component includes an outdoor stage, trails, a dog park and The total investment could be up to $1 billion. The plan is to make the project a hub of activity for the entire community. Some parts of the mall structure will remain along with new construction. The entire project will take 5-10 years and will be done in phases. Pending final city approval the sale could go through in early 2022 with work beginning after that.³ If the plan proves successful, it could model as a template for other mall redevelopments.

There were few retail sales in Q4, but one notable sale was Casto’s Governor’s Plaza shopping center and the adjacent vacant anchor, a former JCPenney’s. The property at 9108 Union Cemetery Road in Cincinnati sold for a total of $12.1 million.

Trends

  • Look for more retail conversations, especially in the big box space. With warehouse space in high demand in the Cincinnati market, well-located vacant retail spaces that can be converted to last mile fulfillment space could help fill the void.

  • Vacancy is forecast
    to continue to trend downwards, but ongoing issues with supplies, worker shortages, and inflation could impede the progress as some businesses may not be able to weather the storm.
  • Absorption was positive in Q3 and Q4 of 2021 and is projected higher for Q1 2022.

CINCINNATI METRO RETAIL ASKING RENT & VACANCY

Source: REIS

CINCINNATI METRO RETAIL ABSORPTION TRENDS

Source: REIS

CINCINNATI METRO RETAIL TRANSACTION VOLUME

Source: REIS