Cleveland office vacancies keep on rising

As Sherwin Williams' 1.2 million-square-foot skyscraper rises just west of Public Square, the Cleveland office market overall continues a downward trend that began in 2018 and was exacerbated by the pandemic.

Driving the news: The office vacancy rate in the metro area increased slightly from 2023's first quarter to the second, according to a new report on Cleveland's office market from the real estate company Newmark.

The big picture: Cleveland's high vacancy rate (21.9%) is part of a nationwide "reckoning" in the commercial real estate market brought on by the pandemic, Axios' Emily Peck reports.

Why it matters: Economic uncertainty, paired with hybrid work arrangements and year-over-year decreases in office jobs, means vacancies will probably continue to rise in Cleveland.

Yes, but: The Cleveland real estate firm JLL noted in its quarterly market report that while "corporate rightsizing" — corporations laying off employees and/or reducing office footprints — has led to increased vacancies, a reduced impact is expected in Cleveland because of office conversions and demolitions.

Zoom in: High-profile conversions in recent years have included the old May Co. building, Terminal Tower and 55 Public Square, all downtown.

• A report from CBRE Group Inc. last year found that only Boston and Manhattan had completed more office makeovers than Cleveland.

What they're saying: "Opportunities for continued conversions and alternate uses are definitely on the table," Newmark's research and marketing manager Matthew Orgovan tells Axios, "especially in the central business district."

Between the lines: Though vacancies are rising, rental rates are not falling to increase demand. On the contrary, they're rising.

• Part of that is due to improved amenities, Orgovan tells Axios, and part of that is keeping up with inflation.
• "In addition, Class A asking rental rates are trending up, while Class B rates are trending down," he says, "signifying a flight to quality for tenants that are in the market for space."