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News release

CLEVELAND, OH

Cleveland’s Digital Skyline Report Reveals Local Market Trends: Trophy Office Rent Soars

JLL releases its 2015 building-by-building Skyline report on Cleveland’s commercial real estate market


CLEVELAND, June 3, 2015 – There’s no space like Trophy space. The premiere office towers that make up Cleveland’s skyline boast—by far—the most expensive office space to rent, according to JLL’s 2015 Digital Skyline. Average Trophy rates in the first quarter of 2015 were $28.33 per square foot compared to $19.42 per square foot in non-Trophy buildings.

“With limited availability in this top tier of office space, the rent gap is substantial in Cleveland,” said Andrew Batson, Senior Research Analyst at JLL. “Trophy properties, including Key Tower, 200 Public Square and E&Y Tower, average roughly $9.00 more per square foot than non-Trophy space.”

Looking ahead, Trophy rents are not projected to fluctuate significantly over the coming year. Rents are projected to hold firm even though additional vacancy may provide tenants with more negotiating leverage and greater concession packages.

JLL’s proprietary 2015 Digital Skyline identifies and tracks micro-segments of 47 city centers across North America. The Skyline features Trophy and Class A buildings where tenants and investors alike focus demand for office space in the highest-quality and most-efficient assets.

Foreign investors show increased interest in the U.S. skyline

Foreign capital is playing a starring role in commercial real estate transactions across the U.S. Of the $35.3 billion transacted over the past five quarters nationally, 34.6 percent was driven by international buyers. In Houston and Seattle, every office deal transacted during this time period had a foreign buyer, while in Washington, D.C., Boston and New York, offshore capital led more than 50 percent of office purchases.

On the Cleveland Skyline, foreign investors have not been active in recent years. However, several non-Skyline assets have generated international capital inflow.

“One key example is the purchase of Charter One Bank by a Canadian investment group in December of 2014,” said Batson. “Nationally, however, interactional capital will have a significant, lasting impact on commercial real estate in primary markets this year.”

Tenants and investors look to lower-class assets for customizable space

As investors begin to diversify beyond the Trophies for investment opportunities, a growing segment of tenants are also turning away from Skyline buildings in favor of non-core Class A and Class B buildings. The perception of an “address” has been replaced by the desire for highly customized office space, particularly among fast growing tech and other creative companies.

But, it’s not just tech companies looking for dynamic, flexible office space. The growing millennial workforce and their employers are increasingly drawn to architecturally significant Class B buildings located in dense neighborhoods packed with amenities.

In Cleveland, there are significant value-add opportunities for investors in lower-class assets; however, leasing continues to be concentrated in top tier assets. Key Tower, 200 Public Square and the E&Y Tower recorded a disproportionate level of leasing activity over the last year.

Some, however, have maximized on Class A and B opportunities, and others are likely to follow suit.    

“Take for instance American Landmark Properties, which purchased the Class A, Oswald Centre back in 2007,” said Batson. “It has done a superb job of repositioning that asset and leasing it up. Today, the company is looking to do the same with 1111 Superior downtown.”

Batson added, “Over the last two years, we’ve also seen significant amount of sales activity related to office-to-residential conversions in Cleveland.”

Visit the full Cleveland Skyline for more.

About the Skyline Review
For the first time, investors and tenants alike can now access JLL’s Skyline Review via a digital platform. The fully interactive website will feature JLL’s proprietary market insights regarding office supply, demand, rents, leverage and investment in 47 markets across the United States and Canada, with the ability to compare and contrast individual markets or multiple markets. In addition, the site will offer videos and infographics. All information will also be available via mobile access. Users can also directly access information about Cleveland’s Skyline.

About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $55.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.