Office Space Vacancy Falls in the Toledo Area
Activity in the Toledo office space market is sending mixed messages, but overall suggests reasons for optimism about the future of the sector. Vacancy declined by a full percentage point and rental rates did not decline. The public is beginning to return to the physical office, but to what extent is still unclear. The post-Covid reality has yet to be fully realized, so questions linger for us as well as for our investors. However, a better-than-expected performance of Toledo’s office market in 2021 is the reason for our optimism.
The first half of 2022 saw 93,127 square feet of office space absorbed, leading overall market vacancy to decline from 17.5% to 16.5% by June of 2022. The average asking rental rate for the overall market, at $17.98 full service, remained essentially flat from year end. However, as the market enters the third quarter of 2022, users continue to be very active and there are several larger transactions in play at this time. These prospective transactions should register in our survey results over the coming six to twelve months.
The transactional activity that led to these welcome numbers was primarily comprised of leases for smaller spaces. A slew of leases in the 2,500 to 5,000 square foot range has been the majority of this activity. As has been the case over the past twelve to eighteen months, sales of buildings to owner/occupiers also continued to contribute to the absorption of space. The only large scale move that occurred was ProMedica’s Paramount division relocating from Arrowhead Park in Maumee to ProMedica’s 300 Madison Avenue building downtown, seemingly completing the consolidation of ProMedica’s offices to the central business district.
So far, Toledo is bucking a national trend of a broad flight to Class A spaces. Excluding the ProMedica space swap, most of the absorbed space during the first half of 2022 was Class B and Class C. Another observation is that the suburban office market again outperformed the downtown office market. This is best illustrated by the fact that the combined suburban submarkets managed to absorb over 33,000 square feet of space so far this year, even though ProMedica vacated a very large block of space in the South/Southwest submarket.
We’re hopeful that the next several months will provide some clarity towards moving forward. Currently, some users are expanding their footprint, while others are reducing theirs. Another ambiguity is the significant amount of “shadow vacancy” being carried by users. These are vacant spaces that are not being openly marketed and so are not on anyone’s radar. These spaces will come to market over the next twelve to twenty-four months as their leases end. However, we’re cautiously optimistic that the market’s current positive activity level will be enough to absorb the coming surge of supply.
How it all shakes out remains to be seen, but we’re optimistic. We believe that “business is back” and with it the continuing trend towards brick-and-mortar retail, sit-down restaurants, and physical office space.
The Reichle Klein Group is always ready to talk about your unique needs and aspirations. They are located at One SeaGate, 26th Floor, Toledo, Ohio 43604. Their phone number is (419) 861-1100. You can find them on Facebook, LinkedIn, or you can submit an inquiry on their contact page for information on a specific property or their general services.
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