Northeast Ohio Sublease Market Shrinking

March 10th, 2017

Contrary to national trends published by Newmark Knight Frank's corporate research department, the office sublease market in Northeast Ohio, normally a predictor of underlying momentum in most overall markets, continues to shrink.

NKF's national statistics indicate that sublease space has been rising gradually, from the recent low of 81.5 million SF available at mid-2014 to 97.1 million SF at year-end 2016. Furthermore, sublease totals in some markets, such as Houston, where tenants, primarily oil and gas businesses, drove the sublease availability rate to 5.6%, well above the U.S. average of 2.0%.

As you can see below, Cleveland's office market fundamentals seem to be moving in the opposite direction. In fact, Cleveland's sublease availability rate is 0.6%, much lower than the U.S. average.

Based on NKF's 4Q16 office market stats, sublease information is as follows:
Total Sublease SF Available: 226,662 SF (84,400 SF less than 3Q16).
Total Sublease Available %: 0.6% (down from 0.8% in 3Q16).
CBD Sublease SF Available: 70,285 (55,684 SF less than 3Q16).
East Sublease SF Available: 48,281 (5,769 SF less than 3Q16).
South Sublease SF Available: 71,011 (13,674 SF less than 3Q16).
Southwest Sublease SF Available: 25,547 (2,736 SF less than 3Q16).
West Sublease SF Available: 11,538 (6,537 SF less than 3Q16).
Class A Sublease SF Available: 91,144 (57,893 SF less than 3Q16).
Class B Sublease SF Available: 114,618 (15,273 SF less than 3Q16).
Class C Sublease SF Available: 20,900 (11,234 SF less than 3Q16).
Overall, all submarkets and classes saw a decrease in available sublease space from 3Q16 to 4Q16. So, the Cleveland market saw a healthy amount of positive absorption in the sublease arena in the second half of last year. Year-over-year from 4Q15 to 4Q16, sublease availability went from 320,308 SF to 226,662 SF (a decrease of 93,646 SF, or 0.2%). In the past five years (from 4Q11 to 4Q16), sublease availability went from 819,677 SF (2.1% availability) to 226,662 SF (a decrease of 593,015 SF, or 1.29%).

After giving back space in the third quarter, the overall Northeast Ohio office market made a comeback by the end of 2016 by posting 253,993 SF of positive net absorption. The positive absorption dropped the overall vacancy rate by 70 basis points from the previous quarter to 17.3% for all properties. Leading the way in the fourth quarter was the Central Business District (CBD), which recorded 193,213 SF in positive net absorption. This occupancy gain dropped the CBD's vacancy rate nine basis points to 19.9%.