Cincinnati Builds Higher
As Demand Slows

The Cincinnati region, home to more Fortune 500 companies per capita than either the New York or Washington, D.C., markets, is expecting to see construction begin this year on what is slated to be Cincinnati's tallest tower. It comes as an 11% surge in office construction is expected to add 1.8 million square feet to the area's inventory this year.

But the new supply is coming as gathering storm clouds in the economy could damp demand. While the region's professional and business-services sector has grown, its manufacturing and construction businesses have been bleeding jobs. Annual employment growth was just 0.3% in December, below the national rate, according to the Bureau of Labor Statistics. Macy's Inc., based in Cincinnati, this month said it was eliminating more than 2,500 jobs, though a spokesman said no jobs would be lost in the region.

Demand is clearly slowing, as evidenced by how much space is occupied by businesses. In the fourth quarter of 2007, businesses occupied 34,000 square feet more than they did in the previous quarter, according to Reis Inc., a New York real-estate research firm. But the net amount leased was 92% lower than in the fourth quarter of 2006. By comparison, the national rate declined about 50% in the same period to its lowest quarterly level since early 2004, Reis says.

The Cincinnati region already has one of the nation's highest office-vacancy rates of the country's major markets. As a result of the slowing demand and continued construction, office vacancies are forecast to climb to about 20% by the end of 2009, and office rents to decline, says Property & Portfolio Research Inc., a Boston real-estate research firm.

The news isn't all doom and gloom. Some businesses are expanding. In March, home-furnishings titan Ikea will open its first Ohio store in suburban West Chester, just outside Cincinnati. Moreover, downtown-revitalization efforts are expected to get a lift as developers start construction this year on the soon-to be tallest tower. The 40-story, 660-foot Great American Insurance Building at Queen City Square, designed by the architectural firm of HOK -- formally known as Hellmuth, Obata + Kassabaum Inc., will include a tiara-inspired top. It would surpass the 574-foot Carew Tower in height.

Other developers are running up against the specter of the credit crunch. Trouble obtaining financing has delayed a mixed-use development dubbed The Banks, which is slated to transform a stretch of land along the Ohio River between the Bengals' Paul Brown Stadium and the Reds' Great American Ball Park into a new city neighborhood.

Last month, the city and county extended to Feb. 29 the time given to a joint venture between Atlanta companies Carter and Dawson Co. to secure financing to help pay for the first phase of the project. Valued at about $75 million, the first phase is to include 300 rental apartments and 70,000 square feet of retail space. While the region's below-average job growth has been a concern for potential investors and lenders, Trent Germano, vice chairman of Carter, says demand is still strong for a place to live, play and ultimately work on the city's waterfront. "The Banks is going to happen," Mr. Germano says.

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