Why Office Space Could See a Resurgence in the Valley

YOUNGSTOWN, Ohio – After a year of uncertainty, commercial real estate agents in the region hope that trends they notice with office space indicate a comeback for that sector.

Before that happens, however, they must contend with the possibility that large offices packed with workers might be a thing of the past.

In the last year and a half, demand for office space in the region has dropped about 30%, says Bob Collins, commercial real estate agent with Berkshire Hathaway HomeServices The Preferred Realty in Hermitage, Pa. As more people choose to work from home because of the pandemic, the need for big office space is down.

Some buyers and tenants want inexpensive office space that they will use a few times a week, Collins says.

While people work from home, some might need to meet with a client occasionally. So they’ll lease a small office for $300 to $500 a month in a building with common areas, he says.

Even in his own office, equipped for 40 employees, sometimes as few as eight are present. “There’s times I’m the only one here,” Collins says. “I think the days of big office space are done.”

His observation mirrors the national trend. In the second quarter, office vacancy rates in the United States stood at 17.2%, up from 16.4% in the first quarter and from 15% in the second quarter of 2020, according to data from Statista.

Much of that is driven by the adoption of workplace flexibility during the pandemic. Even as workers return to the office, most say they would prefer a hybrid environment in lieu of working entirely in the office.

In its most recent Workforce Sentiment Survey of 10,000 employees across 18 countries, CBRE Group Inc. reports 85% of respondents would prefer to work virtually at least two or three days each week.

While this could lead to downsizing of office space for large companies, particularly those in major metropolitan markets, some agents see demand for space from regional businesses that are expanding.

Agents at Edward J. Lewis Inc. say the office market is picking up in the Mahoning Valley. The agency has sold several properties this year, including to local companies that are expanding.

“There’s a lot of new businesses moving into the area and a lot of existing businesses are expanding into larger spaces,” says Stan Nudell, an agent with Lewis.

At the start of the month, the agency facilitated the sale of the Churchill Park Plaza and Professional building in Liberty Township to HD Davis CPAs and White Glove Payroll. The property at 4300-4308 Belmont Ave. comprises a 10,000-square-foot office complex and 7,200-square-foot retail plaza.

HD Davis and White Glove will share the office space with the current tenant, Southwoods Health. In addition to housing their offices, co-owners Tim Petrey and Joe Kilgore say they plan to renovate part of the building for meetings and other functions.

“We’ve started working with the township to help make improvements to Churchill Park and work on a game plan to help attract more business to Belmont Avenue,” Petrey says.

“We outgrew our current building [in Youngstown] about four years ago and have been looking hard to find a new spot as we continue to grow,” Kilgore adds.

In August, the Lewis agency handled the sale of the former VA clinic at 2111 Belmont Ave. to Mercy Health-Youngstown for $850,000. In addition to the 25,000-square-foot building, the health care provider acquired seven acres of property to create a campus setting.

“That’s a signature deal,” says Scott Lewis, vice president of Edward J. Lewis.

To accommodate their growth, HD Davis and White Glove Payroll purchased the Churchill Park Plaza in Liberty.

Two new ventures coming into the area – Amina’s Alternatives for Girls and Achieve Beyond Your Goals Career Employment – leased space inside the Coleman Professional Services building at 611 Belmont Ave. Both companies are startups, Lewis says.

“All the users in that building are set up to help people,” he says. “New businesses sort of help each other.”

Other office property deals through the Lewis agency include the sale of Poland Medical Center in Poland for $1.2 million, as well as leases of larger office spaces for BeneSys on Stutz Drive in Canfield, Minuteman Press in the Spartan Square Plaza in Boardman and SouthernCare in Windham Court in Boardman.

“It’s a very active market right now. We see it continuing for the next year or so,” Nudell says.

Another reason the agency is doing so well is that the cost of building materials “is becoming outrageous,” Lewis says.

“It’s very expensive to build new. So older inventories are becoming more valuable,” he says.

Alex Jelepis, executive vice president and director of NAI Pleasant Valley in Cleveland, says he expects to see more interest in existing inventory in the central business district of Youngstown.

Larger business districts, such as the Cleveland metro area, remain “still really quiet,” mostly because the workforces at big banks, consulting firms and other large employers haven’t come back to full occupancy.

“It could be many years until some of these downtown markets recover,” Jelepis says.

However, smaller central business districts like Youngstown will benefit from affordable residential housing stock surrounding the area, as well as ample downtown office inventory priced inexpensively compared to major metros, he says.

“I think it’s set for a comeback. And it’s all set on affordability and bandwidth,” he says. “It’s going to take some time but I’m convinced it’s going to trend up.”

NAI Pleasant Valley managed this year’s auction of the Chase Tower building in downtown Youngstown, which sold for $918,750 in September to New York-based Ashiana Homes Inc.

Dan Crouse, an agent at Platz Realty Group, is seeing good activity in Howland and other areas surrounding Warren, such as Cortland and Champion.

What comes on the market there gets sold or leased, he says.

While Crouse sees fewer people working in smaller offices, those who own larger office spaces aren’t willing to commit to selling just yet.

“If there’s one market that is still not on a firm direction, it’s the office market,” he says. “Nobody knows how this pandemic and work-from-home stuff is going to pan out. That means there’s a lot of office space that has fewer people in it than ever before. But we don’t see it coming to the market.”

One sector that seems to have an abundance of vacant office space is medical. Crouse is seeing more office space come available on the eastern side of Warren and into Howland as doctors are pulled back into area hospitals, he says.

Vacant medical office space is particularly prominent in Mercer County, Pa. Berkshire Hathaway’s Collins says that’s largely driven by providers such as UPMC and Sharon Regional Medical Center moving physicians from satellite offices to main buildings.

UPMC is building a nearly 25,000-square-foot outpatient center in Hermitage, which Collins says will see several doctors under one roof.

Other providers are having five doctors share 10,000-square-foot offices. Offices share staff and rotate the doctors.

“It used to be that a lot of these doctors had their own building and the hospital would kind of pay their rent,” he says. “That seems to be going away.”

In a year’s time, a 3,600-square-foot brick medical office in Hermitage listed by Berkshire Hathaway has had only one showing and three inquiries, Collins says.

A decade ago, “We’d have a lot more activity and probably would have gotten somebody in there,” he says.

For office space properties that sit empty, communities are going to have to work extra hard to find new uses for them, Collins says.

He cites shopping malls that have found creative ways to reuse the space to maintain foot traffic.

Some of the office spaces could be rezoned for retail, particularly specialty shops and health food stores, he adds.

Other single-story buildings that aren’t in a retail area would be good to convert to residential apartments or condos, he says.

“I think there’s a need for upscale apartments,” he says.

Pictured: The Coleman Professional Building at 611 Belmont Ave., Youngstown, now houses two startup businesses.