For 15 years, the marketing and communication firm Adcom’s offices were in the Johnson Block Building on West 6th Street in the Warehouse District. When the company’s lease was about to expire, CEO Joe Kubic faced a choice. Should Adcom remain in that space or look elsewhere?
Kubic really liked the feel and accessibility of the Warehouse District, but was concerned that construction of the new Sherwin-Williams headquarters across the street would eliminate convenient surface lot parking. After looking at some 40 places throughout Northeast Ohio, Kubic decided in 2019 to keep Adcom downtown.
The firm selected the Western Reserve Building on West 9th Street as its new home, with a goal of being in the building by 2020, partly because it offered more than a place to work. In addition to a beautiful office with plenty of windows and natural light, the location is at the intersection of the Flats, Ohio City, the Warehouse District and downtown. Employees can walk to Public Square within minutes, or head down to the Cuyahoga River.
“It’s very exciting to be able to get out of the office in a more active approach, whether we are crewing on the river, or hopping on the bike trail or running, this provides a new experience, as an amenity,” Kubic said.
2020 forced businesses to make tough decisions about leased space, as they closed offices and had employees working from home. As vaccinations increase and COVID-19 cases fall, more businesses will be allowing employees to return to the office. Adcom’s decision to continue to remain in downtown Cleveland was a bright spot in what proved to be a year of mixed results.
Business leaders are optimistic that employees will return to work this year, but they know that downtown office space will look and feel different when they do. They’re offering more flexible work hours, physically distanced spaces, building improvements like air filtration systems, and amenities in order to bring people back downtown again.
A year of ups and downs
The Downtown Cleveland Alliance’s recently released annual report revealed a leasing market that had some areas of growth, as well as contraction in 2020
Drawing on research from the CBRE real estate brokerage firm, the report indicated 81.1% of office space downtown was leased last year, which was slightly more than 2019. The average amount companies paid for that space stayed constant, going from $19.80 per square foot in 2019, to $19.84 in 2020. The report also showed that the amount of space leased in what are thought of as the best locations, or “Class A” buildings, fell from 87.3% in 2019 to 87.1% in 2020. Using figures provided by the JLL brokerage firm, companies did spend more for that prime space, with the cost being $24.75 per square foot in 2019, and $25.62 in 2020.
The report indicated that 53 office businesses chose to either lease or re-commit to leasing downtown, utilizing some 740,000 square feet.
While those numbers indicate the office leasing in downtown is holding its own, Downtown Cleveland Alliance executive vice-president for business development Michael Deemer said that as companies attempt to reduce cost, they are offering to sublease the additional space, which could cause a decrease in rental prices. A report recently issued by the commercial real estate firm Jones Lang Lasalle indicated that nearly 64% of sublease space in Cleveland is located downtown.
Terry Coyne, the vice-chairman of the commercial real estate firm Newmark, agrees that the sublease market is an important indicator of the strength of the leasing market. He tracked the subleasing data for 2020 and found that at one point, there was a new sublease coming on-line every seven days.
“We are in a phase where there are a lot of subleases available, which has an impact on the primary market. Why would I go buy space, when I can just sublease it?” Coyne said.
Tom Charek is communications chairperson for the northern Ohio chapter of NAIOP, which is the commercial real estate development association as well as the president of Welty Development. Charek has also seen a noticeable increase in the subleasing market.
“If you have a company that is leasing two-and-a-half floors, and now because of COVID, they realize they don’t need that extra half-floor, they are going to try to sublease that, because they are trying to be more efficient with their space,” Charek said.
Charek noted that even with the addition of more sublease space on the market in 2020, Cleveland didn’t see a major decline in the cost to lease, because there is only so much office space downtown, especially when it comes to Class A properties.
More than a cube farm
Coyne says the notion that a building has to offer something beyond a place for employees to work has only become more apparent since the pandemic began.
“You were going toward a trend that a building has to have amenities,” Coyne said. “This started in New York about fifteen years ago, and now Cleveland is starting to catch up with that world. If employees are going to come to the office, they should come to a place with amenities, or otherwise they should stay at home. Who wants to sit in a cube and be ‘Dilbert’ from the cartoon, where you live in an environment where you are paying for something people hate?”
Coyne pointed out that the only downtown building that had a positive net absorption over the past twelve months is the AECOM building on East 9th Street. The building offers tenants a golf simulator, a free six thousand square-foot gym for tenants, two soon-to-be built restaurants, coffee shop and large conference rooms.
In addition to amenities that downtown office buildings can offer, Coyne said employers want to lease downtown because the area’s growing population offers employees a very short commute. Downtown also provides a centralized location, which was a major reason Goldwater Bank, N.A. Mortgage Division decided to relocate from Beachwood to the Utica Building, also known as the Brickstone Building on East 9th Street, last year.
“We wanted to attract talent from both sides of the city, and this move offered us that opportunity,” Goldwater regional manager Illya Palatnik said.
While the centralized location was important, Palatnik is looking to add more for his employees to enjoy, including the possibility of a rooftop bar overlooking Progressive Field.
Will they return?
In an opinion piece published in The Plain Dealer on March 19, 2021, Megan Spinos, a principal and strategy director at the workplace design firm Vocon, whose headquarters are in Cleveland, shared statistics from the company’s recent future of the office survey.
103 corporate leaders, who employ nearly 1 million workers at 72 companies nationwide, responded to the survey. Nearly 70% of employers will retain flexible work policies post-pandemic, 66% of employers will utilize a hybrid model, combining remote and on-site work, and 44% of employers see employees mostly working in the office, while also working a few days from home.
During a normal year about 106,000 people work downtown. While it was difficult to pinpoint an exact number, DCA kept in close touch with building owners, and businesses during the pandemic. Through surveys and conversations, DCA found that about 25-30% of that workforce was continuing to work downtown during the pandemic, although as COVID-19 cases decrease, that number is starting to rise.
The pandemic has caused companies to rethink how they use their space. In additional to physical distancing Deemer has been in contact with both building owners, and downtown businesses leasing office space, who are making a concerted effort to keep workers safe, through more strictly regimented cleaning schedules and improved air filtration systems
Adcom began bringing employees back to the office at the beginning of March after a year of remote work. Employees self-selected from a series of four classifications, indicating when they would return to the office, with one of the options being continuing to work from home. Kubic said the first group of workers are tested for COVID-19 weekly. The company added ion generators to the HVAC system, to lower the ability for germs to spread. Employees continue to wear masks and maintain proper spacing. Kubic’s hope is that by the time the other two groups of workers return, that many will have been vaccinated.
While Kubic was fine with employees who decided to continue to work from home, he didn’t think it ideal. “It lacks the human moments,” he said. “You have very few ways to communicate on a Zoom call, the way that you do in person.”
Coyne, too, sees a value in having employees working together in the same place. “How do you train a fresh recruit over a zoom call?” he said. “How can you mentor that person? This is why I think you are going to see people move back into the office. There is a collaborative, community environment that you don’t get at home. It might not be five days a week, but you can’t replace it by only working from home.”
Deemer is optimistic that more and more office businesses will be reopening in the near future.
“I really think we are on the brink of a lot of people returning to downtown,” he said. “As vaccinations increase and people become more comfortable about being in groups, we’re going to see a lot of pent-up demand for togetherness. Zoom fatigue is real, and this feeling that when you are working from home that the workday never ends, I think human nature is going to kick in, because we want and like to be together. Work policies will be more flexible, but the norm is going to be what it always has been, people come together, work, collaborate and build teams.”
An earlier version of this article incorrectly stated the amount companies paid for downtown office space in 2019. We apologize for the error.
Downtown Cleveland Alliance is an underwriter of The Land, supporting coverage of the downtown Cleveland neighborhood.
Dan Polletta is a veteran Northeast Ohio broadcaster and writer. He has written extensively about arts and culture, with a special interest in jazz.
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