A flight to quality bizjournals.com/cincinnati/news/2021/07/16/trading-places.html
In This Article Coronavirus Topic
By Tom Demeropolis – Senior Staff Reporter, Cincinnati Business Courier Jul 16, 2021, 5:00am EDT "It’ll be like going to a Ritz Carlton, an upscale place to work,” said Chris Cicchinelli, president and CEO of Pure Romance, a relationship enhancement company that saw 39% growth from 2019 through 2020. His company’s office upgrade planned for the corner of Third and Main streets in downtown Cincinnati is expected to open toward the end of 2022. Cicchinelli is one of many Cincinnati employers reconfiguring office space to sweeten a return to the daily grind. After 16 months of unprecedented flexibility for workers, savvy businesses are taking a proactive approach. Having an office space that entices employees to ditch T-shirts for neckties, brave rush hour traffic, and shell out for parking could make or break an organization’s labor force. And building owners who have already invested in their amenities and common areas are seeing returns. For those looking to remain competitive, the time to act is now. It’s a flight to quality.
Tenants eye upgrades It’s not just outside-the-box thinkers like Cicchinelli who are embracing high-end makeovers. Law and accounting firms, logistics and construction companies, even homebuilders are getting on board. Fischer Homes jumped on work-from-home as the ideal opportunity to upgrade its Erlanger headquarters without disturbing employees. Tim McMahon, president of the largest homebuilder in Greater Cincinnati, credited tech investments made three or four years ago for his organization’s ability to easily transition to remote work. But that didn’t mean the office was relegated to the dust bin. “Our goal was always to bring the team back full time,” he said.
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Which it did, as of May. A renovated workplace now includes new huddle rooms, an outdoor patio area, barbecue pit and picnic tables and a basketball court. There’s also a space the company has dubbed “the Basement,” named for the location in founder Henry and Elaine Fischer’s home where the company started. With comfortable seating, table tennis, foosball and other games, it’s an ideal spot for employees to mingle and talk. “We have a special culture and part of that is our team interacting collaboratively,” McMahon said. Commercial real estate brokers agree that many companies they work with are gathering intel about how they will use their offices moving forward and most are upgrading. Peter Snow, executive managing director with Cushman & Wakefield is as busy as ever, mostly working with large organizations looking to capitalize on the situation and improve their real estate. As mid-tier and smaller companies have been slower to initiate leasing discussions, he’s expecting that sector to pick up as well.
Landlords reinvest Owners of some of downtown Cincinnati’s largest office buildings feel the squeeze as they compete for tenants. Group RMC is currently injecting millions into PNC Center and Huntington Center at 525 Vine. Both buildings are getting lobby upgrades and Huntington Center tenants will soon enjoy refreshed elevators. At PNC Center, the first floor will have a coffee kiosk, an informal meeting space, and a gaming area complete with table tennis, shuffleboard and a golf simulator. There will also be a 60-person conference room that can be split into two smaller rooms when needed. Rubenstein Partners and Strategic Capital Partners, owners of 312 Elm, launched capital improvement plans back in 2015 when they purchased the 378,000-square-foot, class A office building. They recently added Robbins, Kelly, Patterson & Tucker as a long-term tenant. Scripps Center also has finished a multimillion-dollar renovation of its lobby, amenities and elevators. Adam Mayerson, vice president of the building’s owner and manager Mayerson Cos., said planning for the roughly $5 million upgrade commenced prepandemic, but he hasn’t lost sight of how the priorities of employers and employees have continued to evolve. “We’re trying to learn, listen and continue keeping Scripps Center competitive, but also (respond) to the needs of current and future tenants,” Mayerson said. Since Scripps Center began renovations, it has renewed Thompson Hine, which moved to the 19th and 20th floors of the building and added Ulmer & Berne LLP, another law firm relocating from Center at 600 Vine. Mayerson credits the leasing activity to tenants evaluating their workplace’s attractiveness to top talent in their field.
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Travis Likes, first vice president at CBRE, cites the aforementioned buildings as proof of concept. Reinvesting in existing commercial real estate will drive improved leasing. Even class B buildings in the suburbs could see results. “Redo your parking lot. It will make a difference,” he said. According to Likes, the region’s top-tier buildings both downtown and in other submarkets are not only closing deals but doing so at higher rental rates. Recent data from Colliers shows that the asking rate for class A office space in the CBD climbed to $24 per square foot in the first quarter. That’s up from pre-pandemic levels. “Unlike the last downturn, companies are far less concerned about economics, specifically price,” Likes said. “They are more concerned about how the space is provisioned.” Overall, asking rates increased in the CBD, but that was partially driven by about 1 million square feet of class B space being removed from Colliers’ research this year. Class A vacancy in the CBD is 12.5%, much lower than the overall 13.7% vacancy. “The last 15 years have been about efficiency,” Likes said. “Now, it’s about effectiveness, engagement.”
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Looking at five of the city’s top office towers, net rent either remained the same or rose, in some cases as much as 18%, when comparing the second quarter of 2021 to the end of 2019, according to data from CBRE. The buildings’ combined occupancy also rose during the same time period.
CBD spec project fills fast When Cincinnati Center City Development Corp. (3CDC) kicked off a $51 million redevelopment of the former Macy’s department store into a mixed-use development project, branded the Foundry, they didn’t have a single tenant. But the organization was confident enough in the Fountain Square location and its potential 150,000 square feet of class A office space to move forward. Adam Gelter, executive vice president of development at 3CDC, knew the combination of location and design potential would appeal to those companies who want employees in the office. “We believed we could create a unique space, with the floorplates and the ceiling heights,” Gelter said. “We knew this could be something special.” 3CDC also has recently signed leases with accounting giant Deloitte LLP and Turner Construction Co. Each company is leasing about 30,000 square feet of space at the Foundry. And for both, this move to the heart of the city is considered an upgrade over their existing offices. Gelter expects the Foundry’s office space to be 80% to 90% leased, if not 100%, by the end of 2021.
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3CDC also has recently signed leases with accounting giant Deloitte LLP and Turner Construction Co. Each company is leasing about 30,000 square feet of space at the Foundry. Provided by 3CDC
Space ripe for conversion Since 2012, 1.5 million square feet of local office space has been converted, mainly to residential units or hotel rooms. Another 700,000 square feet is either under renovation or expected to be altered soon. It’s a trend that has been ongoing in the core for a decade and it has spared the Cincinnati from the wave of office vacancies seen in other cities. In the past 12 months alone, two downtown office buildings have reopened at the corner of Seventh and Race streets. The Ingalls Building and Fourth & Vine Tower are being repurposed into a hotel and apartments, respectively. The trend is poised to spread beyond downtown. In Springdale, Vandercar Holdings and WP Land Co. plan to transform two office buildings into 131 apartments, while building another 97 townhomes. The buildings are in a submarket with a high vacancy rate, but there have been no new luxury apartment developments in Springdale for more than 30 years. Unlike previous downturns, employees are feeling confident about their bargaining power, so it makes sense employers would look to sweeten the deal. Anne Maltese, of human resources tech company Quantum Workplace, said 2020 research showed employees appreciated the way companies handled Covid-19. Employees are increasingly demanding flexibility, as evidenced by the rise to record levels of quitting reported by the Bureau of Labor Statistics in
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April. Companies looking for a return to the office need to make strategic choices now. For local leaders like Cicchinelli, that means using every tool in his toolbox to land and keep the very best employees. As he says, “It’s the experience inside the building that’s most important.”
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