Looking Back Q3 2026
The Cleveland office market showed early signs of stabilizing in Q3 2026, though demand still trails the space landlords are carrying. Overall vacancy fell 30 bps to 13.4%, down from 13.7% in Q2, as the market posted 101,732 square feet (sf) of positive net absorption for the quarter. YTD net absorption improved to -1.75 million sf (msf) from -1.85 msf in Q2. Chagrin, East & Lander led the quarter with 233,260 sf of net absorption, followed by Akron at 142,736 sf. The Northeast & Lake County submarket remains the largest drag YTD at -571,212 sf, largely due to a single complex coming back on the market, while Rockside & South leads the three submarkets with positive YTD absorption.
Asking rents edged up $0.05 from Q2 to $19.57 per square foot (psf). Class A rents rose $0.41 to $22.32 psf, 14.1% above the overall average, up from a 12.2% premium in Q2. This continues to reinforce the flight to quality discussed last quarter, as tenants continue to pay more for newer, amenity-rich buildings while older product carries most of the vacancy.
Leasing activity totaled 243 deals covering 994,607 sf, up from 208 deals in Q2 but slightly lower in square footage. New leases made up 217 of those deals and 875,024 sf. AmTrust Financial Services led the way with a 102,062-square-foot new lease at 6055 Parkland Boulevard in Mayfield Heights, plus a 60,312-square-foot lease at 1300 E. 9th Street in the CBD. Sales activity rose to 70 trades totaling 1,371,907 sf, up from 59 trades and 1,329,757 sf in Q2. KRA Management bought two CBD buildings, 1801 E. 9th Street from Flagstar for $2.9 million ($8.72 psf) and 1111 Chester Avenue for $1.3 million ($8.04 psf), which together account for 500,352 sf.
The Sit Down: Eric Schreibman
This quarter, I sat down with Eric Schreibman, one of our top-producing office brokers and a specialist in the medical office sector. In the general office market, Eric is seeing demand increase as more companies adopt a return-to-office stance. Since the COVID-19 pandemic, many companies have let employees keep working from home, and for some talented employees, giving that up is a deal breaker. Early on, most companies went along with it, worried that demanding a return would cost them top talent. Eric says that's starting to change. "The tide seems to be turning toward 'We want to keep you, but we need you to come in more often. We need you to be here.'" That doesn't necessarily mean a pre-COVID, 9-to-5, five-day week, but most companies are requiring employees to at least follow a hybrid schedule, with some room left for remote work. Because of these remote and hybrid policies, most companies don't need as much space as they used to. "If a user needed 5,000 square feet before, maybe it is only 2,000 to 3,000 now." So, while demand is picking up, it's unlikely to return to pre-COVID levels.
The Sit Down: Eric Schreibman (continued)
Circling back to a topic from last quarter, the flight to quality continues, but with a new twist: smaller and larger tenants are approaching it differently. For smaller tenants, the main driver is space readiness, meaning landlords do the work on a space before showing it. "The majority of local tenants cannot envision a build-out, do not want to deal with the hassle of a build-out, or don't have the time for a build-out." Landlords who have move-in-ready space for local tenants will benefit. Corporate tenants, on the other hand, would rather walk into a blank space and design it themselves. "The larger tenants tend to have the resources and very detailed space programs." They also tend to have more time to make decisions, with departments planning their next moves years in advance, which gives them room to plan, design, and execute tenant improvements in those blank spaces.
Switching gears, medical tenants of any size tend to follow a path similar to large corporate tenants, though for different reasons. Medical office tenants typically sign longer leases and stay in their spaces longer than local office tenants of the same size. "It is very difficult to build out new healthcare space; it's expensive," Eric says. "There is also a real risk of disruption to your practice. If you miss a deadline, you may not be able to see your patients for a two-week period or even a four-week period because the build-out isn't ready." The combination of costly build-outs and potential lost revenue from disruptions creates "an even stronger inertia in healthcare to stay where you are, especially if it's working, perfectly or imperfectly."
Looking ahead, an office reset could be on the horizon, and it starts with receivership. "A number of quality office buildings failed for a number of reasons," Eric says. "Now they have gone through foreclosure or receivership and have new ownership. Since those buyers picked them up at low prices, you are going to see a reset in the market." These new owners bought the properties at a fraction of what they were valued at five to seven years ago. That discount lets them improve the spaces and still price asking rents below comparable buildings that haven't changed hands. It could also drive tenants in Class B or C buildings to move up to A or B+ space, and even expand their footprint, while keeping their overall rent the same. With that in mind, our outlook for the next 12 to 24 months is for both asking rates and vacancy to come down.
His caveat is that asking rate alone doesn't tell the whole story. "To me, tenant improvement dollars really drive these deals," he says. On a five-year lease at $20/SF, a $50/SF TI package equals two and a half years of rent before the landlord sees any kind of return. Depending on TI, term, and circumstances, two deals in the same building, with the same face rate, can end up miles apart when it comes to return for Landlords. Landlords also need to stay flexible. When a recent client of Eric's could only commit to five years instead of ten, the landlord kept the concession package largely intact and took a calculated risk that the tenant would stay. "I think you have to be willing to do that in office to survive."
