KJK’s Cleveland office space is at the tail end of a renovation, having added amenities such as a mini-market, new coffee makers, and renovated kitchen and conference facilities. To most employees, this renovation probably registers as little more than a nice new set-up — a Class A perk to enjoy between billable hours. But to the Economic Development and Incentives practice group, it’s something else entirely: a data point. This renovation comes at a time when every decision companies make, whether to renew their lease, renovate, downsize, or head for the suburbs, feels like invaluable information in helping solve the puzzle of today’s office market.
Market Realities
Demand has dropped for Downtown office space, reflected in negative absorption, increasing vacancy rates, historical lows in lease rates, and smaller office footprints. The market has recorded vacancy rates higher than those seen in the years following the 2008 recession, and has also posted negative absorption in four of the last five quarters, according to a Q2 2026 report by Newmark Research. CoStar data reports vacancy rates consistently rising over the last five years, with the latest estimate at 11.3%.
“Flight to Quality” Still Very Real
The “Flight to Quality” trend remains prevalent among office user preferences, as most of the decreased demand can be seen across Class B office space, with Class B valuations in the CBD projected to decrease over the next 12 months, according to a market report by Integra Realty Resources. Demand drivers for Class A are still largely defined by post-pandemic hybrid work cultures, as tenants have leaned toward smaller, amenity-rich Class A space to entice workers back to the office, redirecting the savings from a smaller footprint into higher-quality space. Newmark reported that Q2 leasing activity was limited to 361,013 SF with average deal sizes coming in under 10,000 SF.
AmTrust is just one real-time example of the underlying trends guiding Cleveland’s office market – the company vacated its tower at 800 Superior Ave for 60,000 SF of Class A space down the street, and 100,000+ SF of suburban office space in Mayfield Heights.
Cost Pressures and Associated Risk
Development costs remain a stubborn headwind for the office market – new office building construction costs are up more than 75% since 2016, amid higher interest rates, tariff impacts, and labor market constraints. On the upside, office lease rates have continued to see marginal growth each year, with a YTD average of $21.95/SF. However, those rates have not kept up with construction costs. For development to pencil, a building needs both stabilized occupancy and rents high enough to support the cost of construction, a bar the Cleveland market is not finding easy to clear. That dynamic was reflected in Q1 and Q2 of this year, when deliveries stalled and just 0.1% of the office market inventory was under construction.
Residential Conversions Can’t Save Downtown Forever
Without meaningful demand projections in the near term, many office buildings have been repositioned for other uses to retain or improve their value. Macroeconomic factors such as record-high mortgage rates, lack of housing supply, and younger demographics choosing to get married and have kids much later, if at all, have created a natural value proposition for office-to-residential conversions in Downtown Cleveland. In 2025, Cleveland led the country with the highest share of office inventory undergoing or planned for conversion, according to CBRE.
While residential conversions have been a productive use of idling office real estate and have supported a significant increase in the number of residents calling Downtown home, the data suggests that the demand for new units may not be sustained for long. Absorption has not kept up with deliveries, vacancy is increasing, and deliveries have slowed according to CoStar market data.
This may be a signal that it’s time for Cleveland to shift its focus back towards commercial end-users. Attracting new end-users to set up headquarters Downtown, retaining existing tenants through tenant improvement budgets and committed ownership, and assembling land strategically for future deals will be critical strategies for helping Downtown through this market. Encouragingly, public incentives have a role to play in all three.
Mitigating Risk Through Development Strategy and Public Incentives
If You Build It, You Will Come
Though construction costs are elevated, Cleveland has continued building office space, with both new construction and adaptive-reuse office projects moving forward in the current environment. The most notable is Sherwin-Williams’ new tower on Public Square, an $860 million investment housing more than 3,100 employees. Outside the Downtown core, CrossCountry Mortgage and the Cleveland Police have relocated their headquarters through adaptive reuse projects on Superior Avenue. Ohio City has seen office market activity as well – Flannery Georgalis LLC is currently expanding with a historic rehab on W. 25th Street, demonstrating that even smaller, growing companies are finding success in this market.
These projects are succeeding largely because a substantial portion of the risk typically associated with new development has been absorbed. These deals share a similar profile: build-to-suit, owner-occupied, Class A office space. Construction costs remain high, but both desirability and market demand for the space are effectively built into the project, and owner-occupancy eliminates vacancy risk. By nature of being owner-occupied, the lease rates are less susceptible to market pressures and can be set to support construction costs, allowing the development to pencil.
The takeaway is that although the office market is in a downturn, development can still occur if the right conditions are met. Demand exists; it’s just targeted to Class A space. The average rent gap between Class A and Class B offices continues to grow, according to Newmark Research, suggesting tenants are willing to pay a premium for quality spaces.
Regarding new builds, should another large HQ show interest in Downtown Cleveland, available parcels are limited in the core business district. That said, the newly assembled development site taking shape on the Lakefront may offer an exciting new area of downtown to attract office users to build their ideal property from the ground up. The waterfront site could support development for even campus-size HQs.
Historic Tax Credits: Turning Distressed Buildings Into Deals
While estimates vary by source, roughly half of the buildings in the Central Business District are considered either financially or physically distressed, driven by shifts in demand, aging building stock, maturing loans, and high interest rates. The Oswald Centre, Huntington Building, AmTrust, Rockefeller, and Ohio Savings Plaza are prime examples of buildings that went into distress and sold at a deep discount. Faced with idle space and falling valuations, many Cleveland office buildings have converted to other uses, with public incentives, including historic tax credits, playing a large role.
Cleveland’s aging infrastructure is a significant headwind for the office market, but it comes with an upside: historic tax credit eligibility. When a structure qualifies as “historic” in the eyes of state and federal government, the threshold is at least 50 years old, the project becomes eligible for federal and state tax credits to support redevelopment costs.
The City of Cleveland has 226 buildings and 47 historic districts eligible for these incentives, according to the National Register of Historic Places. The map below shows the 10 nationally recognized historic districts within Cleveland’s Central Business District.
Through federal and state historic tax credits, developers are able to close the cost-to-build and cost-to-rent gap that enables speculative development. And as construction costs continue to rise, the case for public incentives and civic support gets more critical in capital stacks. The saying that investment follows investment is ever true in a downturned market, and incentives can play a crucial role in allowing it to occur in the first place.
Beyond just making projects come alive, historic tax credits have also been shown to deliver positive economic impacts to the communities they touch, while supporting sustainable development and community revitalization. The National Park Service and Rutgers Center for Policy Research report on the program’s impact annually, citing increased job generation, property valuations, tax revenues, and boosted regional GDP, all driven by the private investment the program attracts.
From 2020 to 2025, historic credits helped bring approximately $516 million of total project costs across office, multi-family, and mixed-use projects into play for the Central Business District, according to Novogradac’s analysis of National Park Service SHPO Part 3 data. That figure excludes projects underway today. The majority of that capital injection can be attributed to multi-family projects, thanks to the market-rate housing demand factors noted earlier.
Historic tax credits alone cannot pencil a project, but they close a meaningful share of the gap. To reactivate Cleveland’s buildings, projects require sophisticated stacks flush with both private dollar and public incentives in the form of grants, tax credits, TIFs, tax abatements, capital lease structures, Brownfield grants, TMUDs, and NMTCs.
Attraction and Retention Strategies Will Be Key
Office market strain has been felt nationwide, but those headwinds hit a little harder when a familiar skyline like Cleveland’s sells for a deep discount. Absent intervention, declining values at key downtown buildings will pull surrounding valuations down with them. Residential conversion projects have led the way as a natural value proposition so far, but with those units no longer being absorbed at the same rate, it may be time for Cleveland to shift its focus back to retaining and attracting commercial and mixed-use tenants. Modernizing aging office stock is critical to that effort. Cleveland’s 90-day action plan released this summer suggests the City is moving in that direction, with tenant retention identified as a central priority – upon its rollout, the plan calls for a “TI bank” that would provide access to tenant improvement funds for renovations, along with other strategies such as expanded outreach for companies considered flight risks.
Cleveland will need a full range of development tools to keep creating value in today’s office market. Strong public-private partnerships, nuanced attraction and retention efforts, and creative applications of public incentives will be essential to keep deals getting done and to defend the value of Downtown real estate through this market.
Contact Us
KJK’s Economic Development & Incentives team works with government bodies and advises developers and businesses on development finance strategies across office, multifamily, mixed-use, retail, and historic rehabilitation projects. To discuss further, contact Abigail Logar (AEL@kjk.com), Senior Analyst.