By Ken Alltucker
The Cincinnati Enquirer

Greater Cincinnati's landlords will face another difficult year of corporate downsizing and lower rents as the office market claws its way out of a two-year slump.

That's the conclusion of several area commercial real estate firms that predict a slight recovery with some companies expanding or relocating even as many firms shed jobs and ditch space.

While an improving economy has lifted corporate profits, many Cincinnati companies are sending high-paying office jobs overseas to India, China or other nations with lower labor costs.

"The criteria for locating a new operation is no longer CBD (central business district, downtown) versus suburban, but rather Cincinnati versus Bangalore or the Philippines," according to commercial real estate firm CB Richard Ellis's 2004 forecast.

Stephen Siegel, who heads CB's global brokerage operations in New York, predicted that the nation's economic recovery will be "a little less explosive from a real estate perspective."

Cincinnati's office market both downtown and in the suburbs had another disappointing year in 2003. More companies decided to vacate office space than expand last year - resulting in a loss of more than 35,000 square feet of leased space. That compares to a five-year average growth of about 165,000 square feet.

The result has been rising vacancy rates. Various firms estimate that downtown's Class A vacancy rate ranges from 14 percent to 16 percent. About one-quarter of all suburban office space (including space that is rented but not occupied) is empty, according to CB.

But as some suburban markets begin to recover, brokerage Grubb & Ellis West Shell Commercial predicts a difficult 2004 and 2005 for downtown.

Convergys Corp.'s move from a building at Sixth and Vine streets to its newly purchased Atrium One could drive downtown's "record-high vacancy still higher," according to Dave Ebbesmeyer, West Shell's research services manager.

Cincinnati Bell employs about 1,500 workers in the Atrium One and Two buildings. But it signed a deal with Convergys that requires it to move hundreds of workers from Atrium One by the end of 2005.

Despite the uncertainty, Western & Southern Financial Group has started groundwork for a 180,000-square-foot office building at Third and Broadway in downtown Cincinnati.

Real estate experts expect little office construction this year. One will include developer Ackerman Group, which is building a 120,000-square-foot building in Norwood, to be anchored by Gold's Gym.

Duke Realty Corp., Greater Cincinnati's largest developer, is eyeing a possible new office building at the Whiting Manufacturing site in Blue Ash, but it's been unable to land an interested tenant.

"The market hasn't recovered enough to warrant speculative development," said Duke's Dan Ruh, who oversees office leasing for the company.

E-mail kalltucker@enquirer.com