Office Midwest

Marcus & Millichap's sunny forecast: Office vacancies plummeting, rents soaring in Midwest cities

Office vacancies down, rents soaring in Midwest cities,ph01

Expect office vacancy rates to head down across the Midwest this year as companies continue to make the move to urban centers.

That’s one of the key findings in Marcus & Millichap’s 2018 office forecast report.

According to the report, the majority of office markets in the Midwest will see falling vacancies and rising asking rents this year. That, of course, can only be considered good news by office brokers.

In the Cincinnati market, for instance, Marcus & Millichap is predicting that office vacancies will fall 30 basis points this year to 13.1 percent. This is a big change from last year, when the office vacancy rate in the Cincinnati market rose 60 basis points.

During the same period, rent is expected to rise 2.2 percent, inching it up to the low-$17 range. Part of the reason for these positives? There won’t be much office construction in the Cincinnati market this year, with developers expected to add about 240,000 square feet of new office space to the region in 2018. This, too, is a change from a year earlier, when the 740,000 square feet of office space was delivered to the Cincinnati market.

While Cincinnati’s office market seems in line for a relatively tame year, Cleveland’s office sector is expected to soar in 2018. Marcus & Millichp predicts that Cleveland will see 650,000 square feet of new office completions this year. This will bring the three-year rate to about 1.1 million square feet. The Offices at Pinecrest project alone will bring 200,000 square feet of new office space to the market.

Even with the new completions, the Cleveland office market’s vacancy rate will fall 40 basis points to 13.1 percent, Marcus & Millichap predicts. Not surprisingly, with all this good news, Marcus & Millichap expects the average asking rent here to climb 0.7 percent to $17.96 a square foot.

Indianapolis is expected to see similar results, with Marcus & Millichap predicting that the vacancy rate in this region will fall 60 basis points this year to a low 10.4 percent. Last year, the Indianapolis region saw its office vacancy rate dip by an even more impressive 130 basis points.

With vacancies falling, office rents should jump in 2018. Marcus & Millichap is predicting a rent increase of 5.1 percent to an average just higher than $20 a square foot.

The office market is expected to be a bit more subdued, though still strong, in Kansas City, Missouri, this year. Marcus & Millichap is predicting a vacancy drop of 20 basis points to 10.8 percent. This prediction would have been higher if not for the 450,000 square feet of new office space expected to this the Kansas City market this year. The vacancy drop that is predicted is especially impressive considering that the Kansas City region saw 930,000 square feet of new office construction in 2017.

Marcus & Millichap predicts that office rents in this region will increase by 2.4 percent to $19.36 a square foot as occupants lease space in newly completed, and more expensive, buildings in the submarkets of Johnson County and downtown Kansas City.