Is OTR the newest hot office market?

Cincinnati’s Over-the-Rhine neighborhood gained local and national renown for its new housing, retail shops and places to eat.

But it’s easy to see one of the neighborhood’s missing pieces, if you talk to commercial real estate broker Peter Snow.

Snow, a Downtown-based vice president at Cushman & Wakefield, said despite the historic area’s rising cachet, it's still difficult for companies who love the place to move there. A lack of buildings with large floor plates and concerns about parking are among the chief concerns that have slowed employment growth, he said.

Here’s the good news: There may not be a shortage for much longer. Local real estate developers are planning several projects to add about 200,000 square feet of space in Over-the-Rhine, according to an Enquirer analysis of publicly announced projects.

To put it in perspective, 200,000 square feet is less than 60 percent of General Electric Co.’s new eight-story office building under construction at The Banks. Still, projects from Grandin Properties, Urban Sites and the Cincinnati Center City Development Corp. (3CDC), would add among the largest renovated spaces in the neighborhood.

Two new projects that 3CDC is planning would nearly double the amount of office space it has added in the neighborhood since the developer's inception in 2003.

“If these buildings would have been there in the last three years, they would have leased up,” Snow said. “I think they’ll do very well.”

The interest in Over-the-Rhine and other urban neighborhoods is being reflected in cities around the country as they see a resurgence of residential and commercial real estate development. Left hollowed out after a few decades of disinvestment, neighborhoods near Downtown Cincinnati have become more desirable sites for residents and office workers.

At the same time, new buildings are sprouting up in Greater Cincinnati’s largest office markets, out-of-town investors are gobbling up land and buildings, and the entire market is seeing a decline in its office inventory.

What's fueling Cincinnati's office market rebound

"Businesses want to have offices in urban, walkable, historic and diverse (areas)," said Seth Maney, executive vice president at Over-the-Rhine-based developer Urban Sites. "The era of attracting young talent to a suburban office park is changing."

And while the buildings themselves may be attractive, Maney said businesses want their office spaces to respect the integrity of the structure. Floor-to-ceiling drywall is not what these companies are seeking. He said they much prefer exposed brick, historic hardwood, and industrial finishes inside their spaces.

The case for new space

The development of newer office spaces has lagged behind the addition of residences, dining and entertainment options in Over-the-Rhine.

Part of that reflects the return on the project for investors based on costs. Aging but historic Italianate buildings and those of other styles require costly upgrades to retrofit them with features from elevators to new heating and cooling systems, Snow said.

But it also reflects a lag in demand despite the hundreds of millions of dollars of public and private investment completed in the neighborhood in the last decade. Concerns about a lack of parking and safety still are still present.

Yet now there’s enough momentum to drive prices for existing space higher and demand to get new spaces built. The average rent for office space in Over-the-Rhine now exceeds the region's average, which is $17.79 per square foot, according to Cushman & Wakefield.

More than 20 office tenants that fill space that 3CDC has helped develop or renovate, according to data from the nonprofit community developer.

The redevelopment work 3CDC has completed has been designed to "create that 24-hour community where the office crowd" can shop, visit lunch spots, have a drink in bars and frequent service-based businesses, spokeswoman Anastasia Mileham said.

"If you foster an environment where people want to be, then the businesses follow," she said.

How the miracle on Vine St. evolved

John Heekin, a principal of Downtown-based Source 3 Development, said the region’s entrepreneurial community has been critical to bolstering Over-the-Rhine’s credibility as an office market. The company Heekin helped launch a couple years ago was designed to capture development opportunities in urban neighborhoods.

Union Hall opened on Vine Street last year to provide long-term homes to the Brandery, Cintrifuse, and CincyTech and to create a tech cluster that could support emerging companies in the neighborhood and beyond.

Many of the startups and other office users in Over-the-Rhine fill much smaller spaces than what’s typically available found in the largest office submarkets in Downtown and Blue Ash. The average amount of office space that 3CDC's tenants fill is less than 3,500 square feet, according to data from the nonprofit community development entity.

The smaller office spaces in renovated buildings work for startups and smaller companies. However, the leases are typically done on a short-term basis, often less than five years at a time. That's an issue for developers. because it’s difficult to get financing to develop office space in a building when tenants are largely interested in short-term stays.

“If you’re a 5,000, 10,000, 20,000 (square foot) tenant, you really don’t have any options,” Snow said.

The new wave of offices

*3CDC is tackling several office projects in the neighborhood, adding 115,000 square feet of space in Over-the-Rhine in new and existing buildings, Mileham said.

*One development would call for constructing a new 55,000-square-foot office building as a continuation of the Mercer project, which has already delivered new townhomes, condos, and apartments in Over-the-Rhine. Another development, as part of a larger project near 15th and Vine streets, incorporates a combination of historic rehabilitation projects and new construction. The 40,000-square-foot project will incorporate the fronts of the old Smitty’s buildings that burned out in the back.

Grandin Properties plans to redevelop an 88,000-square-foot former warehouse at the corner of West 12th Street and Central Parkway. The more than $12 million development would be the latest on a block that now features a bar and event center in a former church and soon a boutique hotel.

Converting the Strietmann Bakery building into office and restaurant space would be Grandin’s biggest project in its 28-year history, company founder and CEO Peg Wyant said. Wyant said the 110-year-old building is one of the few in the neighborhood with office space that has 15,000-square-foot floor plates.

“People love that old character,” Snow said. “They’re incorporating some new stuff. It’s new construction but still in character with the building.”

Maney said Urban Sites, a developer in Over-the-Rhine since 1985, is planning to add office space at the 53,000-square-foot Film Building at Central Parkway and Elder Street. That project is expected to feature 45 apartments and at least one restaurant and one office space.

In the company's cluster of 10 buildings at 12th and Main streets, it plans to develop about 40,000 square feet of office space and 25,000 square feet of space for street-level retail and restaurants.

*EDITOR'S NOTE: This story has been updated from an earlier version to reflect changes to information from a developer.